' The instant appeal has been filed by the appellant/registered person against Order-in-Appeal No. 553 of 2014 dated 1-7-2014 passed by the learned CIR(A), Faisalabad whereby he while maintaining the Order-in-Original No 171/2014 dated 30-5-2014 passed by the learned ACIR (PRA), has upheld the demand raised against the appellant and dismissed the appeal.
2. The facts giving rise to the instant appeal as stated, are that during post audit of appellant's record for the periods from July-2007 to June-2011, audit team observed that the appellant has made zero-rated supplies of yarn to Messrs Al-Noor Impex, Karachi during April-2011, May-2011 and June-2011 who is registered as a wholesaler but as per computer record, Mr. Muhammad Ali is the bona fide owner of Messrs Al-Noor Impex, Karachi whereas Muhammad Kamal Asif has operating his bank accounts at Faisalabad and the appellant received all the payments against transactions made with Messrs Al-Noor Impex, Karachi from Mr. Muhammad Kamal Asif which established that the appellant has actually made supplies to unregistered persons and issued invoices to Messrs Al-Noor Impex, Karachi just to avoid payment of sales tax @ 6% under S.R.O. 283(1)/2011 dated 1-4- 2011 and S.R.O. 1125(1)/2011 dated 31-12-2011. On the said omission/irregularities, adjudication proceedings were initiated by the taxation officer by way of issuance a notice to show cause as to why amount of sales tax may not be recovered under section 11(3) of the Act on account of output tax along with default surcharge under section 34 of the Act and a penalty under section 33 ibid. Despite production of record at the both the lower forums, the appellant could not find any favour and has now come up in second appeal before this Appellate Tribunal. Learned counsel of appellant while opening his arguments, has vehemently contested the charges levelled in the show-cause notice as adjudged in impugned adjudication order and also upheld by the CIR(A) that appellant has supplied the alleged goods under the coverage of proper tax invoices containing zero-percent sales tax issued in terms of section 23 of the Sales Tax Act, 1990 duly incorporated in appellant's sales registers, summary statements and in turn in his sales tax returns and the same has also been declared by his buyer namely Messrs Al-Noor Impex, Karachi in its monthly sales tax returns and summaries thereof for the tax periods in question hence, the instant set of transactions are not hit by the notifications as mentioned supra and no sales tax on such supplies as alleged is warranted under law. He further contented that the alleged buyer was an operative person at the time of transactions with appellant and all supplies pertain to the periods when this buyer was not blacklisted unit and his subsequent inclusion in that very list in October- 2013 cannot be operated retrospectively particularly in the cases where payments have been received through banking channel as requisitioned in section 73 of the Act. On the other hand, in counter arguments, learned DR appearing on behalf of revenue-department has opposed the contentions of learned counsel for the appellant and supported the orders of authorities below for the reasons recorded therein and reiterated almost the same arguments as advanced earlier at time of adjudication and fully supported the orders passed by both authorities below simply re- endorsing the basis evolved therein.
3. We have heard arguments of rival parties and also carefully examined the relevant provisions of law as well as case record and have found ourselves completely in agreement with contentions taken at instance and have nothing otherwise to differ from set of arguments put forth by the learned counsel of appellant. We have no hesitation in our mind to hold that supply of 'yarn' being notified textile goods squarely falling in five major zero-rated sectors, was chargeable to sales tax at zero percent under impugned notifications dated 1-4-2011 and 31-12-2011 as it was found made to registered person only particularly when payments in its respect had also been received through banking channel as required under section 73 of the Act. The benefit of Notification No. S.R.O 1125(I)/2001 dated 31-12-2011 applicable w.e.f. 1st January, 2012, was available to the persons "doing business in textiles and articles thereof (including jute), carpets, leather, sports and surgical goods sectors"and " are registered as manufacturer,importer, exporter A or wholesaler under the Sales Tax Act, 1990" and "appear on Active Taxpayer List (ATV) on the website of Federal Board of Revenue". As such, pre-requisite for availing benefit of zero-rating under the said notification, three conditions for the qualifying person to be fulfilled are (i) doing business in five major zero-rated sectors, (ii) registered under the Act as manufacturer, importer, exporter or wholesalers, (iii) appearing as an active person at 'ATL'. All these conditions as mentioned supra have duly been met with by the appellant as the person to whom Supplies had been made, was obviously doing business in five notified major zero-rated sectors inter alia including textiles and textile articles thereof and was registered as a wholesaler under the Act and both the appellant and its buyer at the time of transactions were also appearing as an active persons at ATL.
4. Although, all such invoices as alleged in the impugned show-cause notice bear zero percent sales tax involving supplies of textiles and articles thereof, yet payments in respect of sales made to the alleged buyer were received through banking channel as provided under section 73 of the Act and no violation whatsoever in this regard is committed at all. The payments in respect of alleged transactions have admittedly been received through cheques crossed in the name of the appellant duly reflected in his bank account as well, as prescribed under section 73 of the Act. It is very interesting that bank payments have not been denied by the adjudicating authority however; manner of payment was objected but as per conditions and stipulations laid down in subsection
(3) of section 73 of the Act, the amount transferred in term of this section shall be deposited in the business bank account of the supplier, otherwise, the supplier shall not be entitled to claim input tax credit, adjustment or deduction or refund, repayment or draw-back or zero-rating of tax under this Act. The appellant being a supplier in this case has admittedly received the whole payment of transactions in his declared business bank account and if likewise, the buyer has not made payment from his business bank account duly declared to. The Commissioner in whose jurisdiction he is registered then in case of 'zero-rated supply' when no element of tax is involved, the buyer shall not be entitled to enjoy facility of zero-rating and shall not be entitled to reclaim or deduct such input tax credit as paid on its inputs including utilities. The tax functionaries instead of making a case against the buyer for disallowing all inputs against utilities has impeded the appellant in the capacity of a supplier with undue tax and liabilities which is not only unjustified, illegal and unlawful but also unwarranted under law. To resolve the controversy, a perusal of subsection (2) of section 73 of the Act is of paramount consideration which for convenience of reference is reproduced herein below:- "(2). The buyer shall not be entitled to claim input tax credit, adjustment or deduction, or refund, repayment or draw-back or zero-rating of tax under this Act if payment for the amount is made otherwise than in the manner prescribed in subsection (1), provided that payment in case of a transaction on credit is so transferred within one hundred and eighty days of issuance of the tax invoice."
5. It is wroth mentioning here that bank account opened in the name of Messrs Al-floor Impex has been operated by Mr. Muhammad Kamal Asif with due authorization of the alleged supplier.
Opening of bank account by a registered person and its operation by any person duly authorized in this behalf by that person is a general phenomena in the trade and business and there are no provisions in the Sales Tax Act, 1990 and the rules made thereunder restricting a person not to authorize anyone else to operate business bank account of a registered person with his due authorization and consent. Delegation of powers for operation of 113 bank account to any person other than the owner but by the authority and consent of the owner cannot be termed as "tax fraud" as defined under section 2(37) of the Act without establishing any act of dishonesty and fraudulence by the registered person himself.
6. The learned DR appearing on behalf of department has vociferously contented that no documentary evidence was produced by the appellant at any stage of adjudication to prove genuineness of the alleged transactions therefore; demand of sales tax has rightly been created against the appellant in the adjudication order as well as upheld in the first appellate order. After perusal of record, we are in agreement with the thrust of the arguments of the learned AR that the appellant has submitted all the relevant record/documents i.e. Sales tax invoices, sales tax returns along with summary statements, payments proof along with bank statements, verification letters, etc but both the authorities below did not utter even a single word in this behalf and deliberately and intentionally ignored the same which rendered their whole exercise of adjudication illegal, void and nullity in the eyes of law. It is now well-settled law that any record/documents produced by a taxpayer during the course of adjudication proceedings either at the original stage or at the appellate stage if not discussed and controverted and have gone unchallenged and unrebutted by the tax functionaries are itself amounts to admission of its legality and authenticity. The learned counsel for the appellant has placed on record copy of verification letter dated 7-1'0-2013 wherein the buyer namely Messrs Al-Noor Impex, Karachi has admitted that Mr. Muhammad Kamal Asif is his sole authorized agent and is also authorized to deal with his bank accounts on his behalf and a letter dated 15-11-2007 for Appointment of Agent duly verified by Justice of Peace, Government of Sindh was also produced by the counsel of appellant.
7. There is no iota of doubt that the alleged buyer namely Messrs Al-Noor Impex, Karachi was admittedly registered as a wholesaler under the Act and was appearing as an active person at ATL and was also doing business in textiles and textile articles thereof which is one of the major five zero-rated sectors and therefore, supplies of yarn made to him was chargeable to sales tax at the rate of zero-percent. The supplies made by the appellant pertain to the periods from April-2011, May-2011 and June, 2011 when the alleged buyer was an operative/active person and not included in the list of blacklisted units and his subsequent inclusion in that very list in October-2013 cannot be operated retrospectively. It is a cardinal principle of law that an executive order , and notification, which is detrimental or prejudicial to the interest of a person imposing liability or obligation cannot operate retrospectively however, a beneficial executive order and notification issued by an executive functionary can be given retrospective effect. In this regard, it will suffice ti refer to the judgments of Hon'ble Supreme Court of Pakistan in case of "Army Welfare Sugar Mills Ltd. And others v. Federation of Pakistan and others"(1992 SCM R 1652), in case of "Government of Pakistan v. Messrs Village Development Organization" 2003 SCM R 492, and in case of "Messrs Anoud Power Generation Limited and others v. Federation of Pakistan and others PLD 2001 SC 340.
8. We also deem appropriate to mention here that in the recent past, a division bench of the Hon'ble High Court, Lahore has dilated upon the same controversy in case of "Commissioner Inland Revenue v. Rana Riasat Tufail and others" reported as (2014 PTD 1530) by holding that furthermore, the blacklisting order is subsequent to the period for which refund is being claimed. At the time of transactions, the three entities were admittedly not blacklisted and there is no final order even today against the three blacklisted units. Therefore, no case for interference is made out. In the light of the aforesaid, this ICA is dismissed.
9. In another case of "Messrs Nimra Textile Mills (Pvt.) Ltd. v. Federation of Pakistan, and others", the Hon'ble High Court, Lahore in Writ Petition No. 17237/2013 dated 9-7-2013 has held that the status of the buyer existing at the time of supply of goods by the petitioner shall be considered while deciding the show-cause notice and not the status attained by the buyer subsequently.
10. Notwithstanding above, penalty under section 33 of the Act is primarily levelled and confronted in impugned show-cause notice whereas it has eventually been imposed and adjudged under section 33(13) of the Act in consequent adjudication order which renders it illegal and unlawful. No penalty under any subsection of section 33 can be imposed and adjudged against a taxpayer through an adjudication order until and unless each and every subsection is specifically mentioned and confronted in show-cause notice and if any penalty is imposed without confronting relevant provisions as contained in subsections of section 33, it would definitely fall beyond the scope, stance and contents of show-cause notice which would render it illegal, unlawful and void ab initio. It is now well-settled law that where any adverse finding is given in the adjudication order on the allegations or violation of provisions of law which are not incorporated and confronted in the show-cause notice, the entire proceedings would be rendered as illegal and void for reason of breach of natural justice, which is also breach of law. The. Stance taken by learned counsel for registered person is fully supported by the ratio settled in the reported judgment of Apex Court of Pakistan in case of The Collector Central Excise and Land Customs v.
Rahim Din"(1987 SCM R 1840). The ratio decidendi in the said judgment is as under:-- "However, we are of the opinion that it is not necessary to determine this question of law in the facts of the present case as this petition can be disposed of on the short ground that the order of adjudication being ultimately based on a ground which was not mentioned in the show-cause notice, the order was palpably illegal and void on the face of it."
11. In view of what has been discussed hereinabove, particularly in the light of law and record, we hold that the impugned orders passed during the hierarchy of Inland Revenue, being suffering from grave legal infirmities are declared to be illegal, void ab initio and are hereby set-aside.
12. The instant appeal filed by the registered person is accepted as indicated above.