' These cross appeals impugn the Order-in-Appeal No, 583/20, dated 16.8.2013 passed by the learned Commissioner-Inland Revenue (Appeals), Faisalabad (hereinafter 'impugned order'). The said impugned order was passed by the learned first appellate authority while 'disposing of the appeal, filed by the registered person, against the Order-in Original No, 14/2013 dated 25.04.2013 issued by the learned Deputy Commissioner-Inland Revenue, Zone-I, RTO, Faisalabad whereby the registered person was held to be in default of principal sales tax amounting to Rs, 6,874,377,469 together with applicable default surcharge and penalty leviable in terms of provisions contained in the Sales Tax Act; 1990 (hereinafter 'the Act').
2. The relevant facts in brief, are that registered person, is a public limited company incorporated under the provisions of Companies Ordinance, 1984 100% owned by the Government of Pakistan, engaged in the business of distribution and supply of electricity in eight different districts falling in Faisalabad region. 'This is the second round of litigation. The original Show-Cause Notice No, 7, dated 31.12.2011, was issued under Section 36(1) of the Sales Tax Act, 1990 on the basis of audited annual financial statements for the year 2008-2009 pertaining to period 1.7.2008 to 30.6.2009. In consequence to usual adjudication and appellate proceedings, the matter was finally assailed before this Tribunal. In terms of appellate order dated 25.6.2012, issued by this Tribunal in S.T.As. Nos.
628/LB/2012 and 822/LB/2012, the cross appeals were disposed of, with the consent of the parties, in a manner that the matter was remanded to the concerned taxation officer, having jurisdiction of the case, with following observations:--- "4. Heard both the parties record perused. We have carefully examined the provisions of Section 36(1) & (2) and we agree with the submission of learned counsel that it carries some preconditions.
The relevant provisions are reproduced hereunder for convenience:--- "36. Recovery of tax not levied or short-levied or erroneously refunded.---(1) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with notice, within five years of the relevant date, requiring him to show-cause for payment of the amount specified in 'the notice.
(2) Where, by reason of any inadvertence, error or misconstruction, any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay the amount of tax or charge or the amount of refund erroneously made shall be served with a notice within three years of the relevant date, requiring him to show-cause for payment of the amount specified in the notice: ' Provided that, where a tax or charge has not been levied under this sub-section, the amount of tax shall be recoverable as tax fraction of the value of supply.
' Sub-section (1) of Section 36, if compared with subsection (2), shows that legislature has addressed two different situations in both the sub-sections; one where the registered person makes any evasion deliberately and in collusion with any fraudulent element and the second where the tax was not paid due to any fraudulent element and the second where the tax was not paid due to any inadvertence. For this reason, under sub-section (1) the limitation is five years whereas under sub-section (2) the limitation is there years.
5. Laguage of the show-cause notice confirms the plea taken by appellant's counsel that collusion or deliberate act of tax evasion was never confronted. We agree that the show-cause notice can at the most be taken to have been issued under sub-section (2) of Section 36 and we hold accordingly. In view of this, both the orders below are vacated. Case is remanded to Taxation Officer having jurisdiction of the case now and direct to treat the show-cause notice as issued under Section 36(2) and proceed de novo keeping in view the limitation. Provided therein. The Taxation Officer shall also decide the objection about the chargeability of sales tax on certain invoices. He shall pass a speaking Qrder after considering all legal objections."
3. In purported pursuance of the above-said directions of this Tribunal, the Deputy Commissioner Inland Revenue issued amended show-cause notice dated 2.4.2013 treating five tax period from July, 2008 to November, 2008 as time-barred and the remaining seven tax periods from December, 2008 to June, 2809 as within limitation provided. It was in this backdrop that the Order-inOriginal No, 14/2013 was passed by the Deputy Commissioner Inland Revenue on 25.4.2013, raising the Sales Tax Demand of Rs, 6,888,265,303 and after adjustment of refund payable to the registered person at Rs, 1,459,602,984, the balance recoverable demand was raised at Rs, 5,428,662,819 alongwith default surcharge and penalty. The learned Commissioner Inland Revenue (Appeals), vide Sales Tax Order-in-Appeal No, 583/2013 dated 16.8.2013, broadly confirmed/upheld the order-in original on all points, except the demand created at Rs, 13,887,834 on account of free supply to employees, which was deleted, holding the same to unsustainable in law. It is these findings of the first appellate authority that have compelled, both the registered person and the revenue, to pursue remedy through filing of subject appeals.
4. In the memo. Of appeal, as well as during the course of hearing, the registered person has argued the taxation officer passed the impugned Order-in-Original No, 14/2013, dated 25.4.2013 in utter disregard to direction of this Tribunal, contained in earlier order dated 25.6.2012 and as such did not provide proper opportunity of being heard. It was emphatically argued the taxation officer
(i) did not decide the objection of chargeability of Sales Tax on certain items (tax against services and other than supply of goods); (ii) did not redress the legal objections raised by the taxpayer; and (iii) also did not pass a speaking order. Following grounds of appeal have been raised by the taxpayer/registered person:---
(1) The issue of chargeability to Sales Tax of subjects other than supply of goods was not considered by the respondents while initial burden to prove chargeability of amounts mentioned in the show-cause notice was on the Revenue.
(2) The adjustment of admitted refund of Rs, 1,459,602,484 against unlawful demand was mala fide.
(3) The amounts taken from the financial statements in the Show-Cause notice for the full year were admittedly not servable between the time-barred tax periods and the rest of the tax periods; hence, the Adjudication Authority proceeded on averages, assumptions and presumptions unsustainable under the law. The impugned order is, therefore, liable to be annulled.
(4) The respondents were not justified to shift the burden of proof regarding chargeability of the amounts mentioned in the show-cause notice from the Revenue to the taxpayer/appellant.
(5) The respondents failed to apply mind to Section 25(3) of Sales Tax Act, 1990 and the issue of chargeability other basis of prescribed record the prescribed record pertains to Sales Tax taxable transactions while non-prescribed record pertains to both the taxable and nontaxable transactions; hence, non-prescribed record, might be used from verification of prescribed record but it could not be made basis for assessment of sales tax.
(6) The rejection of claim of input tax amounting to Rs, 150,734 against the invoices of alleged black listed/non-filer units is based on unfounded assumptions and despite several request and reminders allegations not confronted in the show-cause notice.
(7) The levy of Sales Tax on the allegation of Short payment of Sales Tax amounting to Rs, 712,779,000 is illegal:-
(i) Sales Tax levied on the amount of Advance Income Tax collected at source from the consumers, is unlawful.
(ii) Sales Tax levied on zero rated supplies is illegal.
(iii) The show-cause notice was based on casual perusal of financial statements instead of the audit of prescribed record under Section 25(3) of the Act; hence, it is vague and void as amounts not chargeable to tax under Section 13(2)(b) of the Special Procedure Rules, 2007 Section 3 of the Act read with Section 2(46) of the Act were illegally subjected to tax.
(iv) The notifications in support of zero rated supplies were illegal sidetracked.
(8) The impugned demand of Sales Tax amount of Rs, 1,549,484,903 on the subsidy received from the Government of Pakistan is illegal and liable to be deleted.
(i) No supply is made to the Government of Pakistan against the value of Tariff differential subsidy; hence, subsidy is not chargeable to Sales Tax.
(ii) The judgments relied up by the learned C I R (Appeals); are clearly distinguishable as the judgments pertain to income Tax.
(iii)The CIR (A) was not justified to disregard the Sales Tax Order in Appeal No, 46/ST/2010, dated 29.12.2010 passed by the CIR(Appeals) Gujranwala.
(iv) Subsidy given by the Government to consumers, being welfare activity, is not taxable activity under Section 2(35) of the Act; hence, it lacks the second ingredient of chargeability as well.
(v) Subsidy was granted by the Federal Government in view of its economic and social policy objectives in terms of Section 31(2)(c) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997; hence, it was Government activity and not taxable activity.
(vi) Under Rule 14(1) of the Rules, Sales Tax is leviable on the amount of Sales Tax actually billed to the consumer as subsidy is not actually billed to the consumer, it stands excluded from the charge of Sales Tax.
(9) The impugned demand of Sales Tax amounting to Rs, 266,041.728 and Rs, 352,407 in 'new connections and Reconnections' is unlawful:
(i) Vague allegation was levelled without ascertaining the nature of receipts against 'new connections and reconnections'.
(ii) Capital cost contribution for the installation of transformers, poles, transmission lines etc. In connection with the new connections and service charges for reconnections are not covered by any charging provision under the Act.
(iii) Even otherwise, such installation remains the property of the appellant and no supply is involved.
(iv) The receipts include services charges and development of immovable infrastructure which is beyond the charge of Sales Tax under the Act.
(2004 PTD 868 and 2011 PTD (Trib.) 808)
(10) The impugned demand of Sales Tax amount Rs, 84,663,352 due to alleged mismatch Sales (excluding subsidy) declared in audited ( financial statements and Sales Tax returns contrary to law and fact of the case, (the sale value (excluding subsidy) in Audited Finance Statements allegedly exceeds by an amount Rs, 613,809,302):---
(i) The respondents failed to consider the Audited Financial Statements/Income Tax Returns and Sales Tax Returns a governed by different laws an considerations; hence, the allegation mismatch is misconceived.
(ii) The respondents failed to apply that the difference resulted from timing difference. Units consumed by the consumers in June are accounted for June in Financial Statements while by pertaining to such units is issued different batches in July. Sales Tax under Rule-14 of the Sales Tax Special Procedure Rules, 2007, is workable the amounts actually billed.
(iii) The respondents acted illegally in relying upon Income Tax Record instead of prescribed record under the Act.
(11) The impugned demands based on the allegations:
(i) Sales Tax not charged on repair, testing and inspection fee Rs, 32,769,968.
(ii) Sales Tax not charged on non-utility operations Rs, 2,119,418.
(iii) Sales Tax not charged on collection of PTV fees etc. Rs, 13,476,264 are illegal. The respondents failed to consider the distinction between charge, exemption and taxability.
(12) The impugned demand of Rs, 1,176,984,362 on account of alleged inadmissibility of input tax claimed against transmission and distribution losses is unlawful:
(i) The respondents misconstrued sections 7 and 8 of the Act, as the input tax claimed was incurred for the purpose of making supplies.
(ii) The transmission and distribution losses are integral part of taxable supply.
(iii) The respondents disregarded the cited judgment which was on all facts with the appellant's case.
(iv) Without prejudice, the transmission and distribution losses were miscalculated.
(13) The impugned demand of Sales Tax o 'deposit works' and deposit work in progress a Rs, 46,563,903 and Rs, 335,435,340 ar
(i) The development of immovable infrastructure and service charges are beyond the purview of Sales Tax by the Federation.
(ii) The respondent illegally disregarded judgment of this Hon'ble Tribunal cited as 2011 PTD (Trib.)
808 which is on all facts with the appellant's case.
(iii) The respondents failed to apply mind to the arguments advanced on behalf of the appellant.
(iv) The reliance on case-law by the CIR (A) is without application of mind.
(14) The impugned demand of Rs, 2,683,04,091 on account of alleged input tax claimed is contrary to law and facts of the case:--
(i) The certificate issued by Messrs WAPDA/NTDC, in support of the supplies made to the appellant and output tax charged by WAPDA/NTDC thereon, was rejected without verification. The rejection of the document without verification is arbitrary and capricious; hence, not a legal determination PLD 1976 Lah. 703 = 1976 PTD 347
(ii) The comparison of returns through STARR system is one month is misconceived, as adjustments under the proviso to Section 7(1) of the Act remain open with six succeeding months as well.
(iii) The practical cases, in support of the application of the aforesaid provision of law, were capriciously sidetracked.
(iv) Even otherwise, adverse action against a registered person on account of defect or default of someone else is illegal. 2011 PTD (Trib.) 773.
(v) The statements made by third parties, without their cross-examination and comparative verification of record, are not legally admissible evidence. 2011 PTD (Trib.) 808.
(vi) The Financial Statements of NTDC for the year ending on 30.6.2009 bear out the facts of purchases made by FESCO from NTDC/WAPDA demolish the allegation to the ground.
(vii) The impugned demand is based on assumptions and presumptions unwarranted under the law; hence, liable to be annulled. 2004 PTD 868.
(viii) Even otherwise, the registered person fulfilled the requirements of Section 7(2) (i); the documentary evidence cannot be rejected without verification.
(ix) The impugned demand is based on the grounds not confronted in the show-cause notice; hence, it is void.
(x) The case-law cited by the appellant was not considered; hence, illegal demand was created to meet collection targets which are mala fide 1999 PTD 1892.
5. The revenue, on the other hand, has adopted no grounds of appeal in the appeal memo which feeling aggrieved by the order-in-appeal to the extent the relief was allowed to the registered person in the impugned order.
(1) That the order of the Commissioner Inland Revenue (Appeals), Faisalabad is bad in and contrary to the facts of the case.
(2) That the learned Commissioner Inland Revenue (Appeals) was not justified upholding the contention of the register person that output tax on free supplies employee was accounted for in CP-41.
(3) That the learned Commissioner In Revenue, (Appeals) was not justified in hook that month wise detail of free supply and o than free supply was provided whereas annexure-C of the returns furnished show consolidated figure of supplies to un-register persons only.
6. We have heard the opposing counsel at lent examined the case record minutely, given earning consideration to rival averments and have also taken account the material, including decisions of higher appeal authorities, relied upon before us during the course o1 arguments. The matters raised in the subject appeals disposed of in following paragraphs. TAXPAYER'S APPEAL JURISDICTIONAL OBJECTIONS
7. Before us, the learned counsel for the tax argued that the amended show-cause notice, too, unlawful as the same failed to meet the essential requisites under Section 36(2) of the Act; hence consequent Sales Tax Order-in-Original and Sales Tax Order-in-Appeal remained also without !Awful authority and liable to be annulled. It was argued that an essential precondition of the show-cause notice under Section 36(2) of the Act is that the amount allegedly not levied or short levied has to be specified in the noticed and in this respect, the initial burden to show that such specified amount as chargeable to sales tax, under the changing provisions, remains heavily on the revenue/tax authorities. In this regard, reliance was placed on the following judgments:-
(i) 1996 SCMR 1470 (Supreme Court of Pakistan)
"It is well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties: the subject is not to be taxed unless the language of the Statute clearly imposes the obligation and language must not be strained in order to tax a transaction which had the legislature thought of it would have been covered by appropriate words."
(ii) 2013 PTD 1536 (Lahore High Court)
"Show-cause Notice is a foundational document, which is to comprehensively describe the case made out against the taxpayer by making reference to the evidence collected in support of the same. It is the .Narration of the acts in the show-cause notice alongwith the supporting evidence which determines the offence attracted in a particular case. Show-cause notice is not a casual correspondence or a tool or license to commence a roving inquiry into the affair of the taxpayer based on assumptions and speculations but is a fundamental document that carries definitive legal and factual position of the Department against the taxpayer.
"The totals of various -service receipt and income items, having no nexus with the charge of Sales Tax, were subjected to Sales Tax on here the basis of unwarranted presumptions. Service receipts and income items like commission on T.V. License fee, tender fee, and liquidation charges are ex- facie not chargeable to Sales Tax. The Sales Tax Officers are allowed access to record other than prescribed record under Section 25(1) of the Act, only to discover omission of any item chargeable to Sales Tax in the prescribed record; otherwise as a rule the audit is to be based on the prescribed record in terms of Section 25(3) of the Act (as it was in force at the material time), since initial burden to show that taxpayer suppressed items chargeable to tax is on the Revenue, this burden cannot be shifted on the taxpayer to prove that everything it did was not chargeable to tax. Such an exercise is also violative of the case-law referred to supra. Respectfully following the judicial pronouncement of the Honble Karachi High Court in the case reported as 2004 PTD 868 the demand is set aside under all the aforesaid five heads (i,e, Sales Tax on miscellaneous income, other electric revenue, overhead recovery; repair, testing and inspection fee and other income energy tariffs)."
8. In addition to above, further reliance was placed by the learned counsel for the registered person on decisions in (i) PLD 1990 Supreme Court 399; (ii) 2013 PTD (Trib.) 2344; and (iii) 2004 PTD 868 (Sindh High Court) while arguing that the show-cause notice by the taxation officer was in utter violation of law, as enunciated by the superior judiciary. It was submitted that the amended show- cause notice was merely a replica of the original show-cause notice and constituted a casual correspondence, based on assumptions and speculations without spelling out definitive factual and legal position of the department. It was submitted that the notice was based on repetition of alleged amounts recoverable in Paras-V to XIII of the original show-cause notice for the whole of the financial year 2008-2009, including five admittedly time-barred tax periods. The taxation officer, it was emphatically argued, admitted at Page-20 of the Sales Tax order-in-original "the adjudication authority is short of month-wise working of amounts recoverable" in the nine paras i,e, paras VI to XIII. In the remaining five paras of the amended show-cause notice, proportionate amounts for seven months were adopted, without reference to actual period-wise and transaction wise amount while charge of sales tax under Section 3 of the Act read with Rule 13 of the Sales Tax Special Procedure Rules, 2007 (hereinafter 'Rules'), envisaged period-wise, supply-wise, bill-wise determination of transactions. Thus, the amended show-cause notice, it was argued, failed to spell out the amount chargeable to sales tax regarding which allegation of non-levy or short levy could be ascertained. The show-cause notice it was submitted, was not a lawful notice; hence, the entire impugned proceedings, and consequent orders were void ab initio.
9. In the context of arguing on lawful jurisdiction, it was further submitted that the impugned show- cause notice was based on the audit of annual financial statements instead of the records prescribed under Section 22 of the Act read with Rule-17 of the Rules. Resultantly, according to learned counsel, the transactions not chargeable to sales tax were presumed to be chargeable and stupendous imaginary demand was raised on such transactions. The charging provisions of Sales Tax Act, 1990, the learned counsel added, are confined to the supply of taxable goods in the furtherance of taxable activity, while supply of services and immovable property are Provincial subjects and the Federation has no authority to charge tax on both the subjects. On this aspect, it was submitted that this Tribunal had directed the taxation officer to consider the chargeability of invoices but he failed to consider this fundamental legal requirement and direction of this Tribunal.
The taxation officer, it was further submitted, proceeded on the same material which included transactions of supply of goods as well as services and receipts against development of immovable infrastructure of the distribution system and hence the entire exercise conducted by the taxation officer lacked lawful jurisdiction. It was the assertion of the learned counsel that in the present case, the taxation officer failed to spell out or support chargeability of the amounts alleged to be taxable in the show-cause notice, and therefore, the amended show-cause notice and the consequent orders were, thus, based on unwarranted assumptions and speculations; hence, liable to be annulled.
10. Challenging on jurisdictional plane, the learned counsel also submitted that the order-in- original, creating colossal demand of Rs, 6,888,265,303, was passed without any fact finding enquiry/investigation and without ascertaining the correct facts, with a view to meeting collection targets. It was submitted that the impugned order, passed with mala fide intent, was by its nature an act without jurisdiction; hence, liable to be annulled. In this connection, reliance was placed (i)
PLD 1965 Supreme Court 671 titled Abdul Rauf and others v. Abdul Hanif Khan and others and (ii)
1999 PTD 1892 Attock Cement Pakistan Ltd. v. The Collector of Customs. The Honble Court, wherein has settled the following principles:--- "The perusal of these facts and circumstances also leads us to believe that the extraordinary zeal was being shown by the respondents to somehow charge the appellant company with the amount of deductions made alongwith the additional tax and penalty. In our view, such demand is otherwise than in accordance with law and we cannot also help to observe that such demand was being made by an impatient department with a view to achieving the target of recovery of revenue and, therefore, in our view the demand was mala fide as well".
11. The learned legal advisor for the revenue/department on the other hand, strongly opposed the legal objections raised on behalf of the registered person. It was submitted that the learned counsel for the taxpayer erred in ignoring the fact that the show-cause notice, earlier ender Section 36(1) of the Act by the taxation officer, was field by this Tribunal to have been treated as show-cause notice issued under Section 36(2) of the Act and as such here was no further need to issue any new or amended how-cause notice. It was submitted that if this judgment vas not acceptable to the appellant, the best course available to the taxpayer was to file reference before the honorable High Court, instead of agitating against the Judgment which has attained finality.
The learned counsel also argued that the impugned order-in-original dated 25.4.2013 was passed on the basis of Show-Cause Notice No, 7, dated 13.12.2011 and ample opportunities i,e, six leering dates, were, provided to appellants for presenting their case. According to learned counsel, the show-cause notice was issued on 31.12.2011 and according to Section 36(2) the limitation for tax periods for which the sale tax returns were filed before 31.12.2008 were barred by time. In fact the show-cause notice was rightly restricted to 7 months.
12. Responding to the argument of the registered person vis-a-vis proportionately reducing recoverable amount through the process of averaging etc., the Legal Advisor for the revenue vociferously submitted that the taxpayer was given six hearing opportunities, during the course of de novo proceedings, to furnish his version but he failed to do so. Moreover, the adjudication authority vide their letters confronted the summary of recoverable amount under Section 36(2) ibid and categorically discussed the basis for reduction in tax liability. The registered person, the learned counsel contended, was informed that there was no month-wise break up available with the revenue and when asked to provide, the AR of the registered person also showed his inability to produce the same. It was obligatory on the part of the taxpayer, according to the learned LA, to provide all the documentary evidence particularly prescribed record including month-wise break up etc. On the basis of these averments, it was contended that the learned counsel for the taxpayer has totally ignored this aspect and, therefore, no illegality was committed by the taxation officer both in the show-cause notice and the order-in-original.
13. We have given serious consideration to the rival arguments and find considerable force in the contentions raised on behalf of the registered person. Based on principles settled by the higher appellate authorities in various judgments, including few relied upon by the learned counsel for the taxpayer, there is no cavil to the proposition that show-cause notice is a foundational document, which is to comprehensively describe the case made out against the taxpayer by making reference to the evidence collected in support of the same. It is the narration of acts in the show- cause notice alongwith the supporting evidence which determines the offence attracted in a particular case. The show-cause notice is a cause correspondence or a tool or license to commence a roving inquiry into the affair of the taxpayer based on assumptions and speculations but is a fundamental document that carries definitive legal and factual position of the revenue against the taxpayer. Indeed, in this case, the revenue grossly erred by proportionately working out the alleged defaults on the basis of averaging. Considering the legal position on the proposition, we have no hesitation to conclude that no lawful life could be given to such a show-cause notice which violates all norms of justice and fair play. The revenue could not be allowed to take refuge under technical defence taken by the learned counsel for the department.
14. The revenue's contention that the remand order dated 25.6.2012 passed by this Tribunal attained llnality, as no reference in the High Court was filed against it, has no legal force, it was an open ended remand order subject to limitation and "all legal objections" including the legal objection regarding chargeability of sales tax on certain invoices. The treatment of show-cause notice under Section 36(2) of the Act thereof brought the proceedings to Square 1 as no final finding of fact or law was recorded by this Tribunal. Since the re-adjudication proceedings were subject to all legal and jurisdictional objections, the treatment of show-cause notice under Section 36(2) of the Act instead of under Section 36(1) thereof was beneficial to the appellant; hence, there was no occasion to file a reference in the High Court. Even otherwise, question of jurisdiction may be raised at any stage. If any authority, in this regard, is required one could refer to PLD 1995 SC 66: Pir Sabir Shah v. Shad Muhammad Khan and another. The Hon'ble Court held "Question of jurisdiction being very important and fundamental in nature, if a forum had no jurisdiction, the same could not be conferred upon it by consent of parties. Court has to consider the question of jurisdiction even though not raised by the parties." Similar principle was laid down by the Hon'ble Supreme Court of Pakistan in the case of Messrs Sutlej Cotton Mills Ltd., Okara v. The Commissioner of Income Tax cited as PLD 1965 SC 443 holding "a point of jurisdiction is one which is not barred even at the ultimate stage before this (Supreme) Court".
15. In this case, after remand, in the manner as aforesaid, the matter was to be reassessed in its entirety with the only legal presumption that the show-cause notice was issued under Section 36(2) of the Act subject to all legal requirements for issuance of such notice as assumption of jurisdiction cannot b3 conferred by the consent of the parties. Reference may also be made to the judgment of the Hon'ble Supreme Court of Pakistan cited as 1999 PTD 4158 holding "relying on general principles after remand the cause becomes wide open to entertain relevant grievances germane to final adjudication of real controversy."
16. The revenue, in this case, undoubtedly failed to discharge the initial burden to spell out chargeability of transactions with reference to 7 out of 12 tax periods. The stand of the revenue that such working should have been provided by the taxpayer as the adjudication officer had no material on the subject on record is self-destructive. The said admission evidently proves that the show-cause notice was nothing but a casual correspondence and a roving enquiry which is prohibited by law as held in the judgment cited as 2013 PTD 1536 (Lahore High Court). The adjudication officer also failed to specify transactions for determination of chargeability of such transactions as charge under Section 3 of the Act is with reference to transactions covered under it and not on guess estimates and averages. The Adjudication Officer, clearly, resorted to guess work and inferences instead of evidence, which is'not sustainable under the law.
17. We are mindful of the fact that this is second round of litigation, hence, notwithstanding the observations above vis-a-vis the lawfulness of the subject show-cause notice, it shall not serve the purpose if the matter is again remanded to the taxation officer, for de novo proceedings, as the legal position of the respective parties, on the matters involved in these appeals, have already surfaced, Thus, it shall be an exercise in futility if the matter is remanded to the taxation officer because the registered person shall bear same fate. Accordingly, it shall be in the interest of justice if the fundamental issues are also taken up and decided. Nevertheless, our findings on each issue shall include remand directions in a manner that the taxation officer while implementing the findings shall determine actual amounts pertaining to periods involved in these appeals for which the registered person shall participate in the proceedings and provide necessary assistance to the taxation officer. MERITS OF THE CASE
(i) ALLEGED INADMISSIBLE INPUT TAX AT Rs, 2,683,158,865
18. In the order-in-original, the input tax amounting to Rs, 2,683,158,865 has been held inadmissible to the registered person on the grounds that the supplier had not shown/declared sales to the registered person in their summaries filed under Section 26(5) of the Act. The allegation, the learned counsel argued, was levelled without application of mind to the proviso to sub-section (1) of Section 7 of the Act. The proviso, according to learned counsel, lays down where a registered person did not deduct input tax within the relevant tax period; he may claim such tax in the return for any of the six succeeding tax periods. Thus, it was added, the comparison based on the returns of the suppliers and the registered person for the one month was, evidently, misconceived as a comparison of 7 months Returns would be required to reconcile the amounts declared by the suppliers and the taxpayer. It was further submitted that the allegation was self-destructive because, the taxpayer, having no generation capacity, could not supply electricity to its consumers if the said purchases were not made. ,
19. Explaining the facts, the learned counsel submitted that the main purchases were made by the taxpayer from National Transmission and Despatch Company Ltd. (NTDC)IWAPDA and necessary certificate, issued by WAPDA in support of such purchases alongwith reconciliation statements was also filed with the taxation officer, as admitted by the learned first appellate authority at Page No, 40 of the impugned order. The certificate, it was argued, was rejected without verification and such rejection of the certificate alongwith reconciliation statement was arbitrary and capricious.
Reliance in this regard was placed on the judgment of the Hon'ble Lahore High Court, Lahore cited as PLD 1976 Lah. 703 = 1976 PTD 347.
20. The copies of audited financial statements of NTDC for the Tax year ending on 30.6.2009 were also submitted which support that the main purchases were made from NTDC alone. In order to lend credence to the argument, the learned counsel relied upon the decision of this Tribunal in 2011 PTD (Trib.) 808 whereby following principles were settled on the proposition:- "The statements made by the third parties, without their cross-examination by the appellant, were not admissible evidence. The assertion on behalf of the appellant that payments were made through crossed cheques to the concerned parties and, had opportunity been given to cross- examine them, the Department would have uncovered concealment in the cases of the third party.
Since the statements of the third patties were accepted without providing the appellant an opportunity to cross-examine them, these statements were not admissible as evidence. Reliance in this behalf was placed on the judgments cited as 1990 PTD 47 (Trib.). The demand was thus not raised in accordance with !Aw and remand thereof by the appellate authority was also illegal and unjustified. The demand is accordingly set aside."
21. The learned counsel further relied upon decision of this Tribunal in 2011 PTD (Trib.) 773 wherein it was held as under:- "If for any reason, the registered person 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 STAR System by the PRAL, the registered buyer should not suffer for the fault of the delinquent supplier."
22. Further reliance was placed on the judgment of the Hon'ble Lahore High Court in its judgment dated 22.11.2012 in W.P. No, 3515 of 2012 titled D.G. Khan Cement Company Ltd. v. The Federation of Pakistan etc. (PLD 2013 Lah. 93), wherein the following principles have been laid down:--- "Every person has a separate legal character enjoying distinct rights and liabilities under the law.
To impose the liability of one over the other is opposed to basic fundamentals of law and offends due process, logic and rationality."
23. Based on the aforesaid decisions vis-a-vis the facts of the present case, the learned counsel prayed that the impugned demand of Rs, 2,683,158,865 raised on the allegation of inadmissible input tax claimed was, therefore, unlawful, arbitrary and capricious; hence, liable to be deleted.
24. The learned Legal Advisor for the revenue, responding to the arguments of the registered person, submitted that the registered person was entitled to claim input tax in any of six succeeding tax periods, however, in this case, the registered person was given ample opportunities to prove this fact at adjudication and appeal stage but it failed to do so. The major concern of registered person remained with regard to purchases from NTDC/WAPDA, perusal of whose returns revealed that it had not declared any sales to registered person during the period under consideration and, therefore, the taxation officer rightly and lawfully determined the default.
25. The transactions with WAPDA, the learned LA submitted, start with declaration of sales to LESCO by WAPDA in its return and then FESCO is eligible for claiming input tax against said transaction. In the instant case, the starting point, i,e,, declaration of sales in the returns of WAPDA is missing which means that FESCO is not eligible for said input tax. In the eyes of the law the valid document is the return filed by WAPDA instead of any certificate.
26. The learned LA further argued that the decision in 2011 PTD (Trib.) 773 was irrelevant as the same contained discussions in respect of cases where tax returns had not been filed, whereas, in the instant case, both the supplier and buyer have filed their returns but the buyer claimed such purchase which was not declared by seller in its return. Likewise, the decision in W.P. No, 351.5 of 2012 was also argued to be irrelevant and out of context.
27. In our view this is a straight forward issue. The taxpayer could not be burdened with tax liability if, even for arguments sake, there was some procedural or technical lapse on the part of the supplier. In this case, the default made out by the revenue is all the more absurd and illogical in a sense that if the taxpayer had not purchased electrical how come it is engaged in the business of sale of electricity of which the revenue undoubtedly had collected sales tax. The respondents, in their submissions, have not addressed the contentions raised on behalf of the appellant. The case- law cited, particularly the judgment passed by this in 2011 P FD (Trib.) 808 has not been distinguished properly, except for general remarks There is no provision in the Act or the Sale Fax Special Procedure Rules, 2007 which empowers the respondents to reject overwhelming documentary evidence and to use the clerical mistakes of the suppliers against the claimant.
28. In the event of any alleged discrepancy between the sales declared by the suppliers and the purchasers made by the registered person, investigation had to be undertaken which of the two parties was at fault. Such investigation should precede the issuance of show-cause notice. The revenue, however, unlawfully disregarded the irrefutable documentary evidence submitted in form of certificates issued by WAPDA, the reconciliation statements and audited financial statements.
The appellant had made bulk of purchases from WAPDA/NTDC. If it is alleged that such purchases were not made, the sales on which output tax has been received by the Department, were not possible as the appellant has no generation capacity and it is just a Power Distribution company.
The disregard of documentary evidence is not , only capricious, arbitrary but also unreasonable and self-destructive proposition.
29. The principles emanating from the decisions relied upon by the taxpayer are clear enough for us to hold that the taxpayer could not be penalized for any act of omission or commission by NTDC/WAPDA. The certificate statements constitute irrefutable evidence that these were bona fide purchases in respect of which the registered person was lawfully entitled to claim the input tax adjustment. It is all the more important to note that the supplier, in this case i,e, NTDC, again is a Government entity which could not be treated to be involved in issuing fake certificates. The revenue has failed to make out valid case for input tax disallowance. The amount is held to be admissible to the taxpayer, however, the matter is remanded back to the taxation officer with directions that he shall obtain necessary evidence from the taxpayer in respect cf input tax adjustment. In the event the taxpayer could not prove from its record that amount constituted bona fide adjustment only then .The adjustment shall be denied. No amount shall be held to be inadmissible if proper evidence and compliance exists with the registered person.
(ii) SALES TAX ON SERVICE CHARGES AND CAPITAL RECEIPTS FOR DEVELOPMENT OF IMMOVEABLE INFRASTRUCTURE.
30. The following service charges vide respective paras of the show-cause notice were alleged to be liable to sales tax, however, it was the contention of the learned counsel for the registered person that amounts constituted consideration for services which, being a Provincial subject, are not conceived in the statute to be liable to levy of sales tax:-
(a) Sales Tax charged on PTV fees;
(b) Sales Tax charged on repair, testing and inspection;
(c) Sales Tax charged on non-utility operations;
(d) Sales Tax charged on reconnection fee.
31. Likewise, the learned counsel for the registered, person also vehemently objected to the action of the taxation officer of subjecting to tax the following amounts received from customers and the Government towards the cost of extension of distribution network and for providing service connections:---
(a) Sales tax charged on amounts received for deposit works;
(b) Sales Tax charged on amounts received for deposit works in progress; and
(c) Sales Tax charged on consideration for new connections;
32. In the course of disputing the treatment meted out by the authorities below, the learned counsel for the taxpayer argued that the same issue has already been decided in favour of the registered person in the case of WAPDA by this Tribunal in the judgment cited as 2011 PTD (Trib.)
808. In this regard, the learned counsel relied upon following excerpts from the judgment:--- "We are inclined to agree with the proposition advanced by the learned representative of the appellant that supply of immovable property is expressly excluded from the domain of taxation by the Federation of Pakistan hence it cannot be subjected to tax on far fetched interpretations made by the learned Collector (A). Reference in this regard may be made to the law laid down by the Hon'ble Supreme Court of Pakistan cited as 1993 SCMR 1523 wherein it was ruled that: "What is excluded by express words cannot be included on any principle of interpretation."
The Hon'ble Lahore High Court in the judgment cited as 2006 PTD 162 (Lahore High Court) held that/construction of immovable property even for its supply is not a taxable activity under the Act and the charge of Sales Tax is confined to supply of goods only." ---By relying upon the above, it was submitted that matter having been already decided favourably by this forum, proprietary demands that similar relief is allowed in this case also.
33. The learned legal advisor while disputing the position of the taxpayer and in the course of supporting the orders of the authorities below, argued that the provisions of Rule 13(2)(b) of Special Procedures for Collection and Payment of Sales Tax on Electric Power notified vide Chapter III of S.R.O. 480(1)/2007, dated 9.6.2007 support the imposition of tax. Following specific provisions were relied upon by the learned counsel for the revenue:--- "The value shall be the price of Electric Power including all charges and surcharges excluding the amount of the late payment surcharge, rent, commissions and all duties and taxes whether local, Provincial or Federal but excluding the amount of Sales Tax, as provided in clause (46) of Section 2 of the Act."
34. By reference to the above provisions, it was argued that the revenue earned by FESCO from charges received for any activity carried out in connection with the instant or prospective distribution and supply of electric power remained also liable to sales tax because supply of electricity remained the sole business of the taxpayer. It was further submitted that the contention of the taxpayer that it was providing services was incorrect and grossly misconceived as FESCO is registered in sales tax records for supply of electricity and all the revenue generated have nexus with this supply. The revenue in respect of repair/testing/inspection etc., receipt against non-utility operations and reconnection, it was argued, are squarely covered in the definition of taxable activity. According to learned counsel, reliance on 2011 PTD (Trib.) 808 was based on misreading of the law.
35. In the context of taxation of capital receipts for development of immovable infrastructure, the learned counsel for the revenue heavily relied upon the following definition of expression 'taxable activity' specified in Section 2(35) of the Act:--- "taxable activity", means any economic activity carried on by a person whether or not for profit and includes:-
(a) An activity carried on in the form of a business, trade or manufacture;
(b) An activity that involves the supply of goods, the rendering or providing of services, or both to another person;
(c) A one-off adventure or concern in the nature of a trade; and
(d) Anything done or undertaken during the commencement or termination of the economic activity, but does not include---
(a) The activities of an employee providing services in that capacity to an employee;
(b) An activity carried on by a person other than an individual as a private recreational pursuit or hobby; and
(c) An activity carried on by a person other than an individual which, if carried on by an individual, would fall within sub-clause (b)."
36. It was submitted that during the de novo proceedings under Section 36(2) ibid, the registered person failed to raise any objection on point of facts. Non-submission of any comment by registered person leads to the conclusion that he has nothing to say in addition to the arguments given at the time of earlier adjudication and appellate forum. The AR requested to account for tax fraction for calculation of recoverable amount under Section 36(2). The plea regarding tax fraction was accepted. The registered person recovered cost of its infrastructural development and works from its beneficiaries; however control of the property in these scheme/works continued to vest with registered person, who is also responsible for operation and maintenance of these infrastructural facilities. In these schemes/works, the registered person used tax paid goods, the adjustment of which was taken against the output tax of power supplies in the course of furtherance of a taxable activity carried on by him. The clause (b) of sub-rule (2) of Rule 13 of Special procedure Rules for collection and Payment of Sales Tax on Electric Power clearly states that the responsibility to collect sales tax shall be of the person making the supply, and the value shall be the price of electric power including all charges, surcharges, excluding the amount of late payment surcharge, rents, commission and duties whether local, provincial or federal, but excluding the amount of Sales Tax. The perusal of said clause, the learned counsel added, reveals that all other charges, rents and commission received by the registered person for the purpose of distribution and supply of electricity are chargeable to sales tax regardless of the fact whether or not the so-called ownership and operation/maintenance of such schemes continue to stay with registered person. As, the cost incurred, on such infrastructure were incidental to cost of electricity and the amount so received from the consumers was used for the furtherance of business activity, it cannot be excluded from payment of sales tax as per law especially, when input tax against these items has duly been claimed by the registered person. By availing input tax adjustment and by avoiding payment of output tax, the registered person caused loss to the national exchequer and on the other hand recovered its own investment costs from the public. Hence, the plea of the registered person, it was argued, was not acceptable.
37. We have given our dispassionate consideration to the rival arguments and material referred to by opposing counsel. We observe that the learned counsel for the revenue has primarily, attempted to justify sales tax on service charges and on receipt for immovable infrastructure on the basis of Rule 13(2)(b) of the Sales Tax Special Procedure Rules, 2007 with emphasis that 'all charges and surcharges, rent commissions, and all duties and taxes are chargeable to tax' if there is no specific exemption available under the law. However, in our considered opinion, the reference is out of context, misplaced and irrelevant. The expression all charges..." could not be read in isolation or for that matter divorced, detached, or de-linked with basic scope provided for in body of the Act and/or Rule i,e, supply of electric power. The consideration, including all charges etc. Has to be in respect of supply of electric power. In case the consideration/amount has no nexus with supply of electric power that does not fall in the scope of tax. It is settled law that while constructing provisions of fiscal statues one as to adhere to what is expressly provided in the statute and one cannot be allowed to go beyond what is stated therein. Further; it is also a trite law that benefit of doubt, if any, has to be resolved in the favour of taxpayer. In our view no lawful mandate exists for putting a charge of sales tax on subject services charges and receipts for immovable infrastructure as these do not, even remotely, has any nexus with the supply of electric power.
38. We also readily agree with the submissions of the learned counsel for the registered person that the Special Procedure Rules are to be read as subordinate to the substantive provisions of the parent Act. Following this principle, we are of a considered opinion that since the primary law prescribes charge exclusively in relation to supply of goods, therefore, the secondary legislation has to be construed and constructed accordingly, Section 3 charges sales tax on the supply of goods only as the supply of services and immovable property are excluded from the purview of the sales tax by Federation under entry No, 49 of the Federal Legislative List. Thus levy of tax on services and immovable property is beyond the taxing power of the Federation.
39. We have no hesitation to conclude that what does not come in the ambit of taxation specified in the statute could not brought through implication etc. Or indirectly. The averment of the learned counsel that unless there is specific provision under the law granting exemption, every supply is taxable is contrary to established law that exemption is the waiver of the charge and comes into play only if a transaction is chargeable to tax. If a transaction is not chargeable to tax, question of exemption would not arise and the liability to pay tax arises by charging Section alone. Reliance in this regard is placed on the judgments of the Hon'ble Supreme Court of Pakistan cited as 1992 SCMR 250 and PLD 1990 1156 = 1990 PTD 768. As the subject of services and immovable property is unambiguously excluded from the purview of Sales Tax by Federation, such subjects cannot be taxed on the purported interpretation is even contrary to Section 3 of the Act itself. The decision of this Tribunal in 2011 PTD (Trib.) 808 unequivocally decides the matter in the favour of the taxpayer and following the same the orders of the authorities below on this point are vacated being unlawful and unsustainable.
(iii) ALLEGED SHORT PAYMENT OF SALES TAX
40. The learned counsel for the taxpayer submitted that the allegation under the head and impugned demand of Rs, 826,820,600 under the head is misconceived as sales tax is not chargeable on the amount of Income Tax collected from the consumers under Section 235 of the Income Tax Ordinance, 2001. Sales Tax, the learned counsel added, is chargeable under Section 3 of the Act on the value of supply. Section 2(46) of the Act defines the value of supply which includes all federal and provincial duties and taxes which the supplier receives from the recipient for that supply. The Income Tax being personal tax is not received from the supply and it is an independent charge on the income of the consumer and adjustable against his assessment. Duties and taxes "for that supply" include only trading taxes which are included in the price of the supply and are passed onto the consumer. Income tax is not included in the price of the supply by the supplier but it is collected on behalf of the Federal Government in the independent capacity as withholding agent and such Income Tax is deposited in the Government Exchequers against which credit is independently claimed by the consumer.
41. The learned counsel, while supplementing the arguments, submitted that there is no nexus between the value of supply and the Advance Income Tax adjustable in the personal assessment of the consumer as independent liability. Rule 13(2)(b) of the Sales Tax Special Procedure Rules, 2007, according to learned counsel, lays down that Sales Tax is leviable on the price of electric power. Since the Income Tax is not includable in the price of electric power, the allegation of short payment of Sales Tax on the Advance Income Tax collected from the customers on behalf of the Federal Government is ex-facie contrary to law and liable to be deleted. Besides, the allegation was made in oblivion of S.R.O. 72(1)/2005, dated 10.8.2005 which provided zero rate for certain supplies against the consumers of the sectors mentioned in the S.R.O. The adjudicating officer, the learned counsel stated, disregarded the record of such zero rated supplies in the prescribed record and jumped at imaginary allegations on the basis of the consolidated Financial Statements. The learned counsel of the taxpayer, while supporting his contentions, also relied upon following excerpts from the decision of this Tribunal in the judgment cited as 2004 PTD (Trib.) 2026:--- "Within the framework of law, the scrutiny of record was only restricted to the prescribed records, whereas the visiting team in this matter altogether disregarded the prescribed records."
42. The learned LA for the revenue, on the other hand, forcefully defended the orders of the authorities below, and argued that the registered person had wrongly contended that only trading taxes are includible in value of supply. The language of the Rule 13(2)(b) of the Special Procedures for Collection and Payment of Sales Tax on Electric Power notified vide Chapter III of S.R.O.
480(1)/2007, dated 9.6.2007, it was submitted, is very clear that all Federal taxes (including Income Tax) are included in the value of supply. The relevant portion is reproduced as under: The taxpayer, according to learned counsel for the revenue, had misconceived the issue.
43. The learned LA further argued that the value of income tax in the instant case is Rs, 1,020 million whereas the difference in actual and declared value of supply is Rs, 5,167 million, meaning thereby that the exclusion of income tax is a partial issue not the whole. The instant charge, the learned LA added, was framed on the basis of statement of units sold and revenue billed for the year 2008- 2009. As per show-cause notice the total billed amount, as declared by the registered person, was Rs, 44,640.68 million including fixed charges, variable charges, LPF Penalty, Seasonable Charges, Meter Rent, Service Rent, Electricity duty and Income Tax. The registered person at the time of adjudication under Section 36(1), agreed with calculation except addition of Income Tax.
44. It was further contended by the learned LA that the Department does not deny the aspect of zero rated sales under S.R.O. 792(1)/2005, dated 10.8.2005, however, the registered person has not produced any detail alongwith documentary evidence for such sales. As far as, the issue of prescribed record is concerned, the registered person's view point according to learned LA was wrong. In this regard, was submitted that the audited accounts are prescribed record under following provisions of Section 22(4) of the Act:--- "(4) The registered persons, whose accounts are subject to audit under the Companies Ordinance 1984 (XLVII of 1984) shall be required to submit a copy of the annual audited accounts, alongwith a certificate by the auditors certifying the payment of due tax by the registered person."
45. The learned LA, in the end, submitted that the judgment of the Tribunal i,e, 2004 PTD 2026 relied upon by the learned counsel for the taxpayer had no nexus with instant case in the light of legal provision quoted above.
46. We have heard both the sides at length. As also noted above, the default adjudged by the taxation officer with regard to issue at hand is clearly based on misreading and mis-appreciation of provisions of Rule 13(2)(b) of Sales Tax Special Procedure Rules, 2007. Income Tax is not covered in the definition of value of supply under Section 2(46) of the Act as it has no nexus with supply. It is personal tax of the consumers which is collected on behalf of the Federal Government by the registered person as withholding agent. It is not hit by the charging provisions of Sales Tax Law, including Rule 13 of the Special Procedure Rules, 2007. Similarly, the reference to (4) of Section 22 of the Act, in our considered opinion, has no relevance to the present discussion as annual audited accounts are not available at the time of submission of month-wise tax returns which are based on the prescribed record under Section 22(1) of the Act. Accordingly, we have no hesitation in vacating the orders of the authorities below by holding that amount of income tax, collected as withholding agent, is not required to be considered/included while determining the incidence of sales tax under the provisions of the Act as well as the Special Procedure Rules.
(iv) SUPPRESSION OF SALES
47. The learned counsel for the registered person argued that the allegation is wholly misconceived as the alleged mismatch between the consociated Financial Statements prepared for Income Tax/Company matters and the Sales Tax Returns results from the different scheme of charge of tax under the Income Tax Law and the Sales Tax Law. The Financial Statements, the learned counsel argued, treat all the units consumed upto the year end i,e, 30th June, 2009 as sales but Sales Tax Returns based on the charge of Sales Tax under Rule-14 of the Sales Tax Special Procedure Rules, 2007, reflect the Sales Tax actually billed. Since the bills are issued for June in different batches in the month of July, the figures cannot possibly match. In order to support the proposition, the learned counsel relied upon following observations recorded in judgment cited as 2008 PTD (Trib.)
541:--- "it is consistently held by the superior Courts of the country that the Income Tax record cannot be made basis for adjudging the liability under the Sales Tax Act, 1990."
48. The learned counsel for the revenue argued that the referred judgment, cited as 2008 PTD (Trib.) 541, was irrelevant as annual audited accounts are not the Income Tax record. The registered person is required to provide audited accounts under Section 22(4) of the Act. It was further argued that the registered person was given ample opportunities, during the adjudication stage, to prove its contention and reconcile the difference between sales declared in Sales Tax returns and Audited accounts but he failed to do so.
49. After hearing both the parties, we conclude that this matter requires mere reconciliation and re-examination of records. Accordingly, the matter is remanded back to the taxation officer to examine the matter afresh in the light of legal framework, referred to be the taxpayer vis-a-vis the mechanism of taxation. He shall afford adequate opportunity to the taxpayer during remand proceedings and shall pass a speaking order in this respect.
(v) INADMISSIBLE INPUT TAX CLAIMED/ ADJUSTED AGAINST TRANSMISSION AND DISTRIBUTION LOSSES
50. In the course of arguments on this issue, the learned counsel for the registered person submitted that in the show-cause notice it was alleged that "there is no provision in the Act which allows input tax credit against these losses", however, the same is without application of mind as such losses are admissible under Section 7 of the Act. It was argued that neither Section 7 nor Section 8 of the Act place any embargo on the admissibility of input tax which is paid for the purposes of taxable supplies, in any manner whatsoever. The purpose of supply, the learned counsel argued, is the crucial test. It was submitted that the transmission and distribution losses were integral part of supplies of electric power in terms of Section 13(2)(b); hence, charges cannot be extended on the basis of capacity of production.
51. In this respect it was argued that the Hon'ble Supreme Court of Pakistan held in the judgment cited as PLD 1997 SC 582 (683) that capacity tax and tax on actual transaction are mutually exclusive. According to learned counsel, since the charging provisions charge tax on actual supplies and losses are unavoidable for making such supplies, therefore, the adjudication officer lacked lawful authority to indirectly levy tax, through curtailment/disallowance of input tax, principally on the basis of capacity i,e, actual supplies + the line losses and distribution losses.
52. The learned counsel further relied upon decision of the Tribunal, in Sales Tax Appeal No, K-84 of 2002, decided on 20.5.2002 wherein it was held, in following words, that input tax adjustment pertaining to wastage is admissible:- "The losses claimed are usual losses and are part of production activity and if input tax is available, there is no reason why the benefit of total input tax could not be adjusted against the total output tax in terms of Section 7---there is no limitation on claiming the input tax paid, the assumption of wastages is not supported by law"
53. Further, the learned counsel referred to the recommendations of Federal Tax Ombudsman delivered vide order dated 28.3.2011 in case of M/s. Peshawar Electric Supply Company (Pvt.) Ltd.
(PESCO) in Complaint No, 170/ISD of 2010 wherein inadmissibility of input tax against Transmission and Distribution Losses was held to be null and void as "disallowing line losses/distribution losses to the extent of 33.20% as determined by NEPRA being manifestly discriminatory and unlawful is tantamount to maladministration as defined under Section 2(3) of the Ordinance". The learned counsel argued that the illegal demand raised on the allegation of inadmissibility of input tax claimed/adjusted against transmission and distribution losses was liable to be deleted as such losses were admitted and allowed by NEPRA as part of the natural process of transmission and distribution.
54. In the course of responding to the contentions of the taxpayer, the learned LA for the revenue, conceded that Section 7 or Section 8 of the Act do not place any bar on the admissibility of input tax which is paid for the purpose of taxable supplies, however, vehemently contended That the contention that transmission and distribution losses are integral part of supplies of electric power in terms of Rule 13(2)(b), is incorrect.
'55. It was contended by the learned LA that the registered person, in this case, is a distributor of electric power and he is not entitled to claim such input tax which was never used in supply of electricity. It was argued that reliance on the two decisions was absolutely irrelevant judgments. By reference to argument of the taxpayer vis-a-vis taxing the capacity which lacked jurisdiction, it was argued that the adjudication officer did not tax the line losses but disallowed the input tax claimed against units lost mainly due to theft and bad infrastructure of distribution. The difference between charging the losses and disallowing the input tax which was not used in taxable supplies, it was argued, are two different things considering which it would transpire that the referred judgment was irrelevant.
56. In connection with the judgment of the Tribunal, it was contended that the same discusses the losses in production and since the registered person, in this case, is a distributor carrying no production activities, therefore the decision is not a valid precedent. Its distribution losses were due to weak transmission lines and theft etc. i,e, due to bad administration instead of technical reasons and hence permit disallowance.
57. In the context of the submission of the taxpayer that transmission and distribution losses were natural as NEPRA duly allow these losses while fixing tariff etc. It was argued by the learned counsel for the revenue that the registered person failed to quote any provision of the Act which allowed input tax against such losses. It was thus prayed that the orders of the authorities below are not disturbed and keeping in view the nature of commodity and the fact that registered person was registered as distributor, the registered person is held entitled to claim input tax only on those units that were sold to end consumers.
58. We have given our serious consideration to the rival averments as well as decisions relied upon before us. In the context of the issue, the facts of which are unambiguous and admitted, we have managed to lay our hands on an elaborative and exhaustive decision of the honourable Lahore High Court reported as PTCL 2002 CL. 115 titled Mayfair Spinning Mills Limited v. Customs, Excise and Sales Tax Appellate Tribunal and 2 others wherein almost a similar issue was discussed, at length, by their lordships of Lahore High Court. In the decision, their lordships observed, in unequivocal and clears words, the allow ability/adjustment of input tax remains exclusively dependent upon the intention of the taxpayer at the time of acquisition of tax paid goods and if the acquisition was, for the "purpose" of taxable supplies made, or to be made, by the registered person, the said registered person would be lawfully justified to claim the adjustment even if due to some unfortunate event or otherwise, he does not actually make taxable supplies.
59. In this case, there is no ambiguity or confusion that electricity, in respect of which the registered person claimed the disputed input tax adjustment, was purchased exclusively for onward taxable supply to consumer, therefore, in the light of ratio settled by the -Lahore High Court, the registered person was lawfully entitled to claim the adjustment under Section 7 read with Section 8 of the Act.
The transmission and distribution losses do not affect the said adjustment which remains fully allowable under the law. Besides, the decision of the Tribunal, in Sales Tax Appeal K84 of 2002, decided on 20-5-2002, relied upon by the learned counsel for the taxpayer, also supports the case of the taxpayer. The argument of the learned counsel of the registered person that very design and structure of the tariff approved by NEPRA is such that it in-builds such losses, thus does not cause any loss to the exchequer vis-a-vis taxes, is also quite forceful because the output tax collected on tariff duly accounts for such losses. Thus, we have no hesitation in agreeing with the contentions of the learned counsel for the registered person that the authorities below erred in law in disallowing/restricting the input tax adjustment. Accordingly, the orders of the authorities below are vacated and input tax adjustment claimed by. The taxpayer is held to be in accordance with law.
(vi) SALES TAX CHARGED AGAINST SUBSIDY
60. The taxation officer, in the order-in-original dated 25.4.2013, imposed sales tax on amount which the taxpayer/registered person received from Government of Pakistan in the form of subsidy.
The treatment meted out, by the taxation officer was upheld by the first appellate authority. In this connection, it was argued by the learned counsel for the registered person that in the case distribution companies, sales tax is chargeable under Rule 14 of the Special Procedure Rules on the amount of sales tax actually billed to the consumers/purchasers of the tax periods. It was argued that subsidy is not billed to the consumers/ purchasers; hence, it is not covered in the charge of Sales Tax under charging provisions, in this regard, reliance was placed on (i) 1996 SCMR 1470 (1475) also referred supra and (ii) PLD 1990 SC 68.
61. In the course of relying on decision of the Hon'ble Supreme Court of Pakistan in the judgment PLD 1990 Supreme Court 68, the learned counsel emphatically referred to following observations:-- - "In taxing Act one has to look newly at which is clearly said. There is no room for any intendment.
There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
62. By reference to above, it was submitted that the tax on subsidy clearly falls out of the purview the charging provisions. It was contended that under Section 3 of the Act, existence of two ingredients, taxable supply in the furtherance of taxable activity, are must to attract the charge of, sales Tax. In this regard, reliance was placed on the judgment cited as 2001 PTD 2097 = 2001 SCMR 1376. It was further submitted that in the case of subsidy, it is neither a supply to the Federal Government nor it is allowed in the furtherance of taxable activity. Subsidy, it was stated, is provided by the Federal Government as welfare activity which is not taxable activity. In this regard, reference was made to the IMF publication: "Tax Law Design and Drafting volume-1, Page-197" wherein following has been discussed on the proposition:--- "Government activity, charitable activity and personal non-business activity should, therefore, be excluded (from economic activity)."
63. It was elaborated by the learned counsel that tariff rates are determined in accordance with directions issued by the Federal Government under Section 31(1) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 and in terms of Section 31(2)(e) thereof "the rates are determined, keeping in view the economic and social policy objectives of the Federal Government which is not taxable activity. The learned counsel for the taxpayer, without prejudice to the foregoing submissions, argued that the adjudication authority picked up incorrect figures under the head of subsidy at Rs, 20,751,780,894 instead of the correct figure of subsidy allowed by the Government at Rs, 15,645,684,825. The copy of the audited Financial Statements bearing out the aforesaid correct. Figure was also submitted for perusal, during the hearing.
64. The learned LA for the revenue forcefully disagreed with the contentions of the taxpayer and submitted that the assertion of the taxpayer that the subsidy was not received against supply of goods i,e, electricity was misconceived. It was contended that total price of energy is the value of sales declared in Audited Accounts of appellant. One portion of the same is received from the consumers and the remaining from the Federal Government on behalf of the consumers. The provisions of S.R.O. 208(1)/2008, according to learned counsel for the revenue, clearly states that the rates as per Schedule-I will be charged by the FESCO for provision of electric services. One part of the sales supply is recovered from the consumers as per rate in Schedule-II and the balance is paid by GOP. According to learned LA, the taxpayer had received payments from its consumers and from GOP, in shape of subsidy, against supply of electric power. It was argued that it is in this background that the taxpayer booked sum of these two receipts, as reflected in the Note No, 22 to the audited accounts, as Sales and it is proved that subsidy is given against supply of electricity and not for other purpose as relied by the learned counsel for the taxpayer.
65. According to learned LA for the revenue, the registered person was required to declare the value of supply at rates in Schedule-I and charge output tax on same, however, it did not charge sales tax on that part of supplies against which payments were received from GOP in the form of subsidy. It was explained that the taxpayer is operating under Distribution License No, 02/DI/2002 granted by NEPRA; in pursuance to Section 21 of the Regulation of Generation, Transmission and Distribution of Electric Power Act (XL of 1997). Under Article 6 of above-said license, the taxpayer is required to charge only such tariff as approved by NEPRA from time to time. In the instant case, the taxpayer is charging a Tariff which is lower than the NEPRA tariff on the directions of Government of Pakistan. The Federal Government pays out the tariff differential amount as subsidy. Moreover, taxpayer receives subsidy from provincial and Federal Government on discounted tariff from agricultural consumers. The perusal of Note 22.1 to the audited financial statements for the year 2008-09 reveals that taxpayer has shown these subsidies as a part of its sales and on the other side it has not charged and paid sales tax on that part of their sale, which, according to learned counsel, was not lawful.
66. The learned LA argued that the subsidy comes under the value of supply in terms of Section 2(46) of the Act ibid read with Rule 13(2) of Chapter-III of Sales Tax Special Procedures Rules, 2007 which is received by the appellant against the supply of electricity (goods) and is actually the part of price fixed by NEPRA and is properly booked under the head of sales in audited financial statements of the taxpayer. Furthermore, the learned LA added, it is an admitted fact that the Federal Government has not changed the rates approved by NEPRA. It only changed the modus of collection of money against those determined/prescribed rates. The only issue upon which the taxpayer has been insisting is that tax will be charged only upon the portion received from the consumer and the amount received from Government is not taxable. This viewpoint, according to learned counsel, is wrong on the grounds that it received total price of energy supplied to consumer, one portion directly from consumers and remaining from Government on behalf of the consumers. The following points, the learned LA supplemented, validate this viewpoint: Total sale price booked in the financial statement.
FESCO had not reduced the input tax claimed with the same ratio.
68. In the course of supplementing the arguments vis-a-vis lawful subjection of subsidy to the incidence of sales tax, the; learned counsel for the revenue also relied upon decision in PLD 1975 Kar. 924 Messrs PIALAC v. CIT, wherein it is held that if the payment is made from time to \ time toward running expenses, that would be revenue 'receipt in the nature of income receipt liable to Tax. The learned counsel, in particular, referred to following excerpts of the decision:--- "There would be little doubt that if the payment had been made from time to time towards running expenses that would be revenue receipts, the fact that the payment was made after the loss had been ascertained will make no material difference. In the instant case the working expenses were more than the receipts earned by the Corporation and that is the reason why the corporation suffered a loss. In effect the payment by Government was made to supplement the receipt so that the loss may be wiped out. Any receipt which has the effect of increasing the capital need not be of capital nature. In the present .Case reimbursement has been made of revenue loss the paid up capital remains the same. The object of the Government in carrying on its business without a loss, and this has been the nature of the payment.
' The view canvassed by the learned counsel for the assessee cannot be sustained upon consideration of the facts of this case and the interpretation of Section 26 of the P.I.A.C. Act and in the result the amount of Rs, 1,05,13,609 paid by the Government to the assessee for making good of the loss sustained by the assessee is found to be in the nature of income receipts liable to tax
68. Drawing analogy from the above, it was contended by the learned LA that in the instant case, taxpayer received the Tariff Subsidy on behalf of the consumers from the government in pursuance of NEPRA Tariff Notification dated 1.3.2008 against the sales of electricity. This, according to him, is actually the difference between NEPRA rates and rates charged to the consumers as approved by the Government of Pakistan. Messrs FESCO received consideration against the supply of energy to compensate loss or guaranteed percentage of profit i,e, the part of the value of the supply. Even otherwise, the learned counsel stated, no exemption of sales tax is available to subsidy in the provisions of the Act and subsidy being clearly taxable was not expressly exempted in the Sales Tax law, therefore, the subsidy received from the Government has nexus with the business activity of the taxpayer, hence it is definitely a revenue receipt, rightly charged to sales tax. Reliance in this regard was also placed on the ratio decidendi of the judgment of Tribunal in I.T.As. Nos. 39 and 40/1B of 1992-93, dated 30.10.1995 wherein it was held that:--- "In our view the assessee's practice to add the shortfall in, and to deduct the surplus profit from, its sale receipts are not two identical situations. When the assessee added the shortfall in its income it did, what it was required to do on the principle enunciated in Pakistan International Airlines Corporation v. CIT PLD 1975 Kar. 924 approved by. The Supreme Court of Pakistan in CIT v. Smith Kline and French authorities lay down that when an assessee receives any money which has nexus with the business of the assessee the money whether call grant, subsidy, or and, is the income of the assessee. Thus while adding the shortfall to its income the assessee did what it was required to do under the law but when it was seeking to deduct the surplus profit from its sale receipts it was entirely a different situation."
69. The learned LA further relied upon the decision of Tribunal in I.T.As. Nos. 354/LB/2006 and 355/LB/2006 for the assessm ent years 2001-2002 and 2002-2003 wherein it was held that:--- "As far as the nature of SGR as "capital receipt" is concerned, we do not subscribe to the contention on the strength of the judgments of the Pakistan and Indian Superior Courts dilated upon at length with the half of relevant paras quoted therefrom at the appropriate places in the earlier part of the order, wherein such receipt having nexus with business of the respondent taxpayer has been held as "revenue receipt" chargeable to tax as part of business profit."
70. It was further contended by the learned LA that the provisions of clause (102A) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001 also validates that subsidy is income and declares it exempt under the statute. This exemption further proves that subsidy as income can be counted towards the value of sales as defined in Section 2(46) of the Sales Tax Act, 1990 unless specially exempted in the statute. There being no exemption provided to subsidy in Section 13 of the Act shows the intention of the legislature i,e, not to exempt it. Otherwise it could have been exempted under the Act as it has been exempted under Income Tax Ordinance. Reliance, in this respect, was placed on PLD 2007 Supreme Court 517 wherein it was held as under-- ' Since the assess while furnishing accounts have =to mention the income from the sale of the goods, machinery, may be vehicles used in the business and the consideration/price of which is still to be used in the taxable activity/in the business, may be by purchasing a new item in place of the old one by using the assets in enhancing, promoting, advancing in development of the business/taxable activity. It follows that sales tax would be applicable in respect of taxable supply made during the course of a business activity. It also follows that it is immaterial whether the supplier is in the business of the relevant goods or not so involved but the sale of these items and the utilization of these sale consideration in the business activity is definitely to be considered in the course of or in furtherance of the business/taxable Looking it from a different angle whenever there is taxable supply made by a registered person in the course of a taxable activity sales tax will have to be levied and if any exemption i,e,, the supply is not liable to the levy of the sales tax, is claimed then it is for the person so pleads to show that the same is covered under the exemption clauses. There is no legal provision excluding the sale of old plant and machinery, vehicles or scrap from the purviews of taxable supply. These goods were purchased by the respondents in the course of their taxable activity, their sale cannot be considered as a transaction which is divorced from their normal business and that the said goods are business assets of the respondents and both their purchase and sale is a part of their normal business activity. The act makes no distinction between the goods supplied by a registered person in the normal and continuous course of business activity as frequent and constant supply or otherwise and there can be no exemption on presumptions. The disposal of fixed assets, scrip by a registered person, being not exempted under Section 13 or being not specified in the 6th Schedule to the Sales Tax Act chargeable to Sales Tax and supply thereof, are taxable supply. The consideration/sale proceeds received against disposal of fixed assets as well as scrip/waste are their income and therefore, it had been taken as income and accounted for as such in their financial accounts. Such income being a part of business and investing activity done during the course of business is an act of furtherance of business. It is statutory authority under sub-section (2) of Section 13 of the Sales Tax ' Act, 1990, which vests in the Federal Government the power to exempt any taxable supply made in Pakistan or any goods or class of goods from the whole or any part of the tax chargeable under the said Act, subject to the conditions and limitations so specified. No exemption has since been notified by the Federal Government in relation to the sale, auction or otherwise disposal of goods, moveable fixed assets including plant/machinery equipment having no value addition to the goods and for which the input tax was not allowed.
' The conclusion of the above discussion is that the fixed assets as have been referred in the cases are goods or taxable goods and comes within the ambit of taxable supply and liable to the levy of sale tax. The High Courts have proceeded on the wrong premises and have wrongly interpreted the legal provisions and have drawn a wrong conclusion thereto. Resultantly, while accepting these appeals, the judgments impugned herein are set aside and it is held that the respondents/assets are liable to the levy of tax on the sale of the assets subject-matter of the cases.
71. It was concluded by the learned LA that notwithstanding any other aspect, non-availability of specific exemption clause in the Act leads to an irrefutable conclusion that subsidy is liable to sales tax as rightly upheld by the taxation officer and learned first appellate authority. The learned LA also raised an alternate argument contending that if the amount, representing subsidy, is held to be exempt, the input tax adjustment, claimed by the taxpayer, needs to be curtailed/apportioned in terms of provisions of Section 8(2) of the Act read with Chapter IV of the Sales Tax Rules, 2006.
Accordingly, it was prayed that either the orders of the authorities below are not disturbed on this point and are upheld or at least directions are issued for curtailment/apportionment of input tax adjustment.
72. We have heard both the sides, examined the record and given serious consideration to the material as well as the decisions relied upon the opposing counsels. In our considered opinion, the averment raised on behalf of the revenue that there is no specific provision of law giving exemption to subsidy granted by the Federal Government, in the form of tariff differential, is grossly misplaced.
The specification of exemption in law is necessary where the amount is otherwise chargeable to tax under the law. If the amount is not chargeable to tax there is no point in providing for exemption in the statute. Here, the fundamental question is whether the subsidy otherwise is covered by the charging provisions of the statute, which the learned counsel for the taxpayer has argued not to be the case. In our opinion the Federal Government granted subsidy to the consumers and not to the taxpayer. The differential tariff subsidy is directly passed on to the consumers as it is not made part of Bill (invoice in term of Section 23 of the Act) and charge of Sales Tax is curtailed to the "Sales Tax actually billed to the consumer or purchasers" under Rule 14 of the Sales Tax Special Procedure Rules, 2007. Where the language of law is clear and explicit, nothing further is to be implied and in this respect, reliance of the taxpayer on the judgment of the Hon'ble Supreme Court of Pakistan cited as PLD 1990 SC 68 is quite well placed.
73. The direct concession to the consumers such as social policy of the Federal Government in terms of Section 31(1) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, means concessional charge of sales tax to the consumers and concessional charge including zero rated charge is not tantamount to exemptions under Selection 13 of 1 le Act.
The reliance by the revenue on PLD 2007 Supreme Court 517 is, therefore, not apt. Under Section 23 of the Act, a registered person is required to issue invoice in the name of the recipient (buyer). In the present case, such invoice is issued in the form of the electricity bills and under rule-14 of the Sales Tax Special Procedure Rules, 2007, tax is "to be deposited on accrual basis i,e, the amount of Sales tax actually billed to the consumer or purchasers for that tax period." Thus the charge of Sales Tax is confined to the amount of price of electricity billed to the consumer. Subsidy is not part of that price belied to the consumer so, in our considered opinion, it falls out of the purview of the charge of Sales Tax.
74. The revenue's assertion that subsidy is taxable as it is not exempt in the same manner as it is exempted under clause 102A of the 1st Part of the Second Schedule of the Income Tax Ordinance, 2001, has no legal basis. The respondents have heavily relied upon case-law from Income Tax Law to show that subsidy is revenue receipt; hence, taxable until it is exempted. Such reliance is misplaced as the charge of In me tax is on income and every revenue receipt has to be treated as income. In the case-law relied upon by the revenue, subsidy was granted to the persons to off set their personal losses. But in the present case subsidy is directly passed on to the consumers in the form of tariff differential and the taxpayer is in no way beneficiary of such subsidy. In this case, the amount of subsidy was reimbursed to the taxpayer by the Federal Government and the treatment in accounts was just contra entries. Reference to the treatment of subsidy as Sales in the accounts of the taxpayer, we agree with the learned counsel for the taxpayer, is irrelevant as the Hon'ble Supreme Court of Pakistan held in the judgment cited as PLD 1985 SC 109 has clearly ruled that "In Revenue cases one must look at the substance of the thing and not the manner in which the account is stated."
75. The objection of the revenue that input tax proportionate to subsidy should have been disallowed is also misplaced. Firstly, this issue was never raised at the initial stage and secondly, and more importantly, the concessional charge of Sales Tax does not mean that supplies were exempt from sales tax. The provisions of Section 2(11) of the Act defines "exempt supply" as supply which is exempt from tax under Section 13". But the supplies in the taxpayer's case are not exempt under Section 13 of the Act. Under Section 2(11) of the Act, even zero rated supplies are taxable supplies. Thus, mere concession in the charge does not make supply as exempt supply. Section 8(2) of the Act is, thus, not attracted to disallow purported proportionate input tax. We are constrained to observe that the revenue is reading imaginary things in the legal provisions which are contrary to their plain and explicit meanings. Besides, input tax it allowed with reference to the purpose of the supply and the revenue is inserting their view in Section 7 that input tax should correspond to the actual supply instead of the "purpose of supply". In arriving at this conclusion, we are fortified with the ratio settled in the judgment of the Hon'ble Supreme Court of Pakistan, cited as PLD 1990 Supreme Court 66, ruling -Where the statute's meaning is clear and explicit, words cannot be interpolated. A first place, in such a case, they are not needed. 'If they should be interpolated, the statute would more than likely fail to express the legislative intent, as the thought intended to be conveyed might be altered by the addition of new words." The upshot of the above discussion is that we hold that the revenue, in this case, erred in law in subjecting to tax the subsidy received from the Government which was not consideration for supply of electricity and thus not chargeable to tax. The orders of the authorities below, on this point, are vacated being unlawful
(viii) INPUT TAX CLAIMED/ADJUSTED AGAINST INVOICES ISSUED BY UNITS HAVING SUSPENDED REGISTRATION AND BLACK LISTED/NON-FILER STATUS
76. In the order-in-original the taxation officer disallowed the claim regarding input tax adjustment of the taxpayer as was found to be attributable to invoices issued by suppliers having suspended registration, black-listed registration and non-filers status. It was argued by the learned counsel for the taxpayer the impugned show-cause notice was since vague, therefore not unsustainable. In this respect, it was contended that party-wise and transaction-wise detail was not confronted to the taxpayer and accordingly, the orders of the authorities below were liable to be annulled, being contrary to well-settled principles of law.
77. The learned counsel for the registered person, with regard to the merits, argued that the action of the authorities below was even otherwise not lawful as at the time when transactions were executed with the respective suppliers they were fully compliant and active, therefore, any subsequent status assigned to such suppliers by the revenue could not disturb past and closed transactions. In this regard, reference was made to the judgment of the Hon'ble Lahore High Court in Writ Petition No, 17185/13: Galaxy Textile Mills Ltd. v. Federation of Pakistan etc. Wherein the following principles were settled:- "The status of the buyer existing at the time of supply of the goods by the petitioner shall be considered while deciding the show-cause notice and not the status attained by the buyer subsequently."
IT was contended that since the decision in the aforesaid order of the Lahore High Court was a 'consent order', therefore, no contrary view could be taken by the revenue authorities once they consented to the same.
78. The learned LA for the revenue, on the other hand, argued that a registered person is entitled to deduct input tax from output tax if he holds a valid and genuine sales tax invoice against which goods have been physically transferred in terms of Section 2(4) of the Sales Tax Act, 1990.. In the instant case, no such incidence has been established. It was contended that since, the taxpayer had claimed input tax adjustment on invoices of such suppliers who were found involved in carrying out unlawful activity in terms of Section 2(37) of the Act and they defrauded the National Exchequer, therefore, the taxpayer could not be exonerated from the charges levelled in the show- cause notice.
79. The learned LA further submitted that the Tribunal, in a number of judgments, has held that no input tax adjustment/refund is admissible against fake/nongenuine invoices. It was also argued that Section 8A sets the joint and several liability of registered person in supply chain where tax remains unpaid. A plain reading of the provision of sections 2(14), 7 and 8 of the Act, according to learned counsel, would make it clear that supply is not completed if transfer of goods does not take place and that adjustment/refund is admissible with reference to goods. In order to complete the supply and to claim adjustment/ refund, the issuance of invoices and payment of input tax must be followed by a taxable supply. If under Section 3(3) the person making the supply is liable to pay the tax, the purchaser is also obliged under Section 8 to reclaim or deduct input tax only on those goods which have been use or to be used for the manufacturer or production of taxable goods or for taxable supplies made or to be made.
80. According to learned LA for the revenue, the invoices (i) against which no goods are received would be treated as fake/flying invoices; and (ii) against which the taxpayer could not produce any convincing evidence to prove that the goods were actually transferred from the supplier's account to buyer's account; the input tax adjustment could not be allowed merely on the point that the suppliers were operative at the time of transaction. The validity of such purchases is to be proved by the registered person which the appellant failed to do so. In this regard, the learned LA, made a reference to the judgment of Tribunal, reported as 2010 PTD (Trib.) 2248, wherein it was held that:- "After hearing respective contention of the parties; I feel no hesitation to say the basic ingredients of refund is that if any amount is deposited in government exchequer that can only be refunded, if the taxpayer has, taken the refund and authority issuing refund has lose sight of this aspect. It is gains recoverable. Now question arises that registered person has no fault if supplier has not paid sales tax or he is blacklisted. The blacklisted units' registrations were suspended by the Board.
Therefore, as per the provision of sub-section (2) of Section 21 of the Sales Tax Act, 1990 in put tax/refund cannot be allowed against fake invoices, even if the requirements of Section 73 of the Sales Tax Act are fulfilled."
81. After hearing the rival parties and after giving due consideration to respective submissions, we observe that the assertion of the learned counsel for the revenue vis-a-vis fake invoices could not be endorsed as the show-cause notice fell short of this allegation. Further reliance of the revenue on 2010 PTD (Trib.) 4248 is also not relevant to the facts of this case as the Tribunal, in the said decision, also dealt with case involving fake invoices. The ratio in the decision of Lahore High Court, cited supra, especially when the same is in the nature of a consent order, clinches the natter in the favour of the registered person. Any subsequent event clearly cannot disturb a transaction that as admittedly completed fully in compliance with law at the relevant time.
82. If we were to agree with the contention of the revenue it would not only create a chaos but would lead to end-less controversy. The taxpayer negotiating a transaction is expected to comply with law at the time of executing the transaction and cannot possibly forecast what would be the fate of the supplier in future. Accordingly, we vacate the orders of the authorities below on this point and remand the matter back to the taxation officer to re-examine the matter. In the light of principles agreed in the consent order of the High Court. In the event the suppliers were active at the time of execution of the transaction no adverse inference shall be drawn against the subject taxpayer/registered person.
REVENUE'S APPEAL
83. The revenue feels aggrieved by the order dated 16.8.2013 of the learned first appellate authority to the extent that he annulled the imposition of sales tax by the learned taxation officer in respect of free supply of electricity to employees.
84. Both the rival parties reiterated the submissions as have already been captured by the learned first appellate authority in the impugned order. In our view the learned first appellate authority's decision is well-reasoned and addresses all the relevant aspects of the matter. The learned counsel for the revenue could not make out any case for interference. Accordingly, for the reasons recorded by the first appellate authority in the impugned order, we dismiss the revenue's appeal on this point and uphold the impugned order.
85. The appeal of the registered person stands dispose of in the manner and to the extent stated above, whereas appeal filed by the Revenue is dismissed.