' JAWAID MASOOD TAHIR BHATTI, CHAIRMAN.---Through this appeal the appellant has objected against the impugned order No,18A dated 17-1-2013 of the learned CIR(A) on the following grounds:--
(1) "The respondent No,2 has issued the impugned show-cause notice under sections 11 and 36 of the Sales Tax Act, 1990. He in Para 6 of his order has also held the subject amount to be recoverable under sections 11 and 36 of the Sales Tax, 1990. The D.C.I.R. Had no pecuniary jurisdiction to issue show-cause notice in the case involving adjustment of input tax of Rs,4,653,699 under S.R.O.
555(1)/96 dated 1-7-1996. A thing required by law to be done in a particular manner must be done in that manner or not at all under Article 4 of the Constitution of Pakistan, 1973. Order made under section 25(3) of the Sales Tax Act, 1990 can only be made with reference to section 36 and Section 36 has to be read with S.R.O. 555(1)/96 dated 1st July 1996 (Annex VII) which remained in force till it was rescinded by S.R.O. 594(1)/2012 dated 1-6-2012 (Annex VIII). It is settled law that a show-cause notice issued beyond pecuniary jurisdiction is a nullity in the eyes of law and no adverse action can be taken on the basis of a show-cause notice issued without jurisdiction.
2(i). That the directorate of Intelligence and Investigation has no jurisdiction to initiate any legal proceedings under the Sales Tax Act, 1990. The Director General has not been notified under section 30A ibid. The CIR (Appeals-II) has relied on letter of FBR dated 12-11-2010 wherein it was mentioned that there is no need of a new notification regarding establishment of the Directorate General of I & I FBR, under section 30A of the Sales Tax Act, 1990. It is submitted that a statutory requirement cannot be annulled by a letter of FBR. The fundamental rights enshrined in the Constitution of Islamic Republic of Pakistan 1973 as Article 4 thereof mandates that to be dealt with in accordance with law is the inalienable right of every citizen and no action detrimental to the property of any person can be taken except in accordance with law. It is held by Supreme Court of Pakistan that a thing required by law to be done in a certain manner must be done in that manner.
2(ii). It has been further held by the CIR (Appeals-II) that the issue of jurisdiction has already been decided by thee Honorable Lahore High Court, Lahore in I.C.As. Nos.77 to 81/2011 in favour of the department. It is submitted that the issue of jurisdiction has not been decided by the Honorable Lahore High Court, Lahore rather it is left to be decided by the Hearing Officer of Inland Revenue.
3(i) That the first appellate authority has not considered our pleas with regard to passing order unheard, non-mentioning of written reply to the show-cause notice, not considering additional arguments and non-considering of para wise comments. The first appellate authority has brushed aside all these objections just by saying that the sanctity of show-cause notice as well as the impugned order cannot be affected on technical grounds. It is submitted that ex parte assessment made on 1-8-2012 which was the date when neither the case fixed for hearing nor notice regarding appearance was issued to the assessee. According to Column 5 of the impugned Assessment Order No,10/2012 dated 2-8-2012 this case has been last heard on 18-6-2013. It is admitted position on the part of the assessee as well as the department that no notice as to this date of finalization of assessm ent i,e, 1-8-2012 has been issued. It is evident that ex parte assessment made on 1-8- 2012 which was the date when neither the case fixed for hearing nor notice regarding appearance was issued to the assessee, is not valid.
3(ii) The written reply to show-cause notice submitted on 23-5-2012 has not been mentioned at all in the impugned order, not to speak of examining it.
3(iii) The points raised in the additional submissions have not been examined and discussed in the impugned order by the DCIR. Thus he has passed a non-speaking order.
3.(iv) Furthermore, at Para 3 Page 9 of the Assessment Order it is mentioned that parawise comments were submitted by Mr.Pervaiz (Auditor) on behalf of Directorate of Intelligence and Investigation - FBR, Lahore on 18-6-2012 these para wise comments were never brought to the notice of the appellant and resultantly no adverse inference can be drawn against the appellant. It is settled principle of law that no one should be condemned under "Audi Alteram Partem".
4. The CIR (Appeal) has, in utter disregard of all rules/law, has held "It appears that the appellant is just trying to seek relief on various technical grounds which cannot be honored being unsubstantiated. The contentions of the appellant with regard to passing order unheard, non- mentioning of written reply to the show-cause notice, not considering the additional arguments and non-confronting of para-wise comments to the appellant are contrary to the facts. In my considered opinion, the sanctity of show-cause notice as well as the impugned order cannot be affected on technical grounds. "all these facts as per our contentions are PROVED BY THE REOCRD AS EXPLAINED IN GROUND 4.
5.(i) That the liability to pay the sales tax collected by a seller of goods cannot be shifted to the buyer of goods under section 3(3) of the Sales Tax Act, 1990. It is explained that the person who made purchases from another registered person is not supposed to check the record of a person making taxable supplies as to whether he has complied with the provisions of the Sales Tax Act, 1990 or not. It is obvious that even otherwise it is practically impossible for a large manufacturing concern like us to undertake any such exercise with reference to all its supplier of goods. The person who purchases goods from a registered person is only under the legal obligation to check whether person making taxable supplies is registered under the Sales Tax Act, 1990 and OPERATIVE at the time of transaction. Rest of the responsibility lies basically with the person making taxable supplies and the Sales Tax Department who is supposed to monitor the payment of sales tax. There is no lapse on the part of the appellant as at the time of transactions with the alleged suppliers, they made sure with due care and caution, the existence and genuineness of the alleged suppliers as under:-
(a) They ensured that the names of the suppliers were not in the list of suspected/block listed/de- registered units at the time of supply of subject goods.
(b) They confirmed the sales tax profile of the suppliers as 'Operative' from the FBR website/respective Collectorates and they were filling their sales tax returns regularly.
5(ii) Nevertheless, if at all the suppliers have committed any tax fraud, or any default, it has been done on account of Sales Tax Department's negligence. Mandatory condition precedent for tax fraud is that registered person has acted knowingly, dishonestly or fraudulently and without any lawful excuse committed tax fraud. The appellant is not intentional defaulter and was equally cheated by the fraudsters who charged tax from the appellant.
5(iii) Legally, the sales tax registration should be granted after proper verification and authentication of the antecedents of an applicant. If the sales tax department has been in league with a fraudster, innocent victims like the appellant cannot be penalized.
6. The DCIR has not determined the quantum of penalty under section 33 in the impugned assessm ent order.
7. That we are a victim of fraud perpetuated by the Sales Tax department and its collaborators who were granted bogus registration and their status was shown operative on FBR's website. No mens rea of the appellant has been established and the department has been established and the department has allowed payment of disputed amount in the instalments. Thus, additional tax and penalties are not attracted. The appellant is not liable to burdened with additional tax and penalty.
8. The appellant has already paid the disputed amount under protest and hence no penalty or default surcharge is payable under S.R.O. 563(1)/2012 dated 25th June, 2012, S.R.O. 776(1)/2012, dated 27th June, 2012. It is settled law that beneficial legislation should be given retrospective effect and hence amnesty S.R.O s. Are applicable to our case. It has been held by the apex court that the executive orders or notification which confers rights and are beneficial would be given retrospective effect and those which adversely affect or invade upon vested right cannot be applied with retrospective effect.
9. That the department and the first appellate forum have repeatedly mentioned the non- compliance of Section 73 of the Sales Tax Act, 1990. It is submitted that out of the total sales tax amount of Rs,4,653,699, Rs,3,847,733 relate to invoices of less than Rs,50,000. It is submitted that Section 73 is not applicable in cases where the value of transaction involved is less than Rs,50,000.
Resultantly, Section 73 is not attracted in the case of predominant majority of our invoices. The statement showing details of invoices involving value of less than Rs,50,000 (Annex IX) was annexed to the memo of appeal filed before the first appellate forum and by not objecting to the same the department has admitted its veracity.
10. That we purchased raw material on payment of sales tax and also obtained sales tax invoices issued under section 23 of the Sales Tax Act, 1990. We manufactured finished goods from those raw materials and these finished goods were cleared on payment of sales tax. We have complied with the conditions laid down in Section 7 of the Sales Tax Act, 1990 for claiming input tax adjustment. It is settled law that where input tax paid is not adjustable or refundable, no output tax is payable.
The complete record comprising sales tax invoice summaries along with sales tax returns cum payment challans and purchase registers along with purchase invoices have been submitted and this fact has been admitted by the detecting agency at para 4 of the contravention report dated 30-6-2011. This fact has been further admitted by the respondent No,2 at para 5 of the Show-Cause Notice that the registered person have provided the requisitioned record. Statement of subject invoices of purchases of raw material and details of goods manufactured therefrom and cleared on payment of sales tax which substantiates the assertion of the appellant that they are not involved in any tax fraud is enclosed. (Annex X)
11. That the first appellate forum has not examined even a single judicial decision mentioned in memorandum of appeal and written arguments. Under Article 189 and Article 201 of the Constitution of the Islamic Republic of Pakistan, 1973 the principles of law laid down in the decisions of the superior courts are binding on all subordinate tribunals and fora."
2. Brief facts of the appeal are that the Deputy Commissioner Inland Revenue on the basis of a report by the Directorate of Investigation and Intelligence FBR Lahore, issued a show-cause notice dated 5-4-2012 to Messrs Engineers Associated Precast (Pvt.) Limited (a private limited company registered as manufacturer under the Sales Tax Act, 1990) asking to explain the unauthorized claim of input Sales Tax amounting to Rs, 4653699 under various provisions of the Sales Tax Act, 1990 along with recovery of default surcharge and imposition of penalty under sections 34 and 33 ibid respectively: The Deputy Commissioner Inland Revenue decided the case vide Assessment Order No, 10,'2012 dated 1-8-2012 confirming the unauthorized input tax adjustment along with recovery of additional surcharge and imposition of penalty under sections 34 and 33 ibid respectively.
' On appeal by the appellant, the learned Commissioner Inland Revenue (Appeals) Lahore vide impugned Order-in-Appeal No, 18/A-II/ 2013 dated 7-1-2013 upheld the order passed by the DCIR while reducing the imposition of penalty from 100% to 25%.
' We have heard the learned counsel for the appellant and the departmental representative and also examined the available record of the case.
3. At the outset, the appellant's counsel has raised the preliminary legal objection as to jurisdiction and pleaded that the Deputy Commissioner Inland Revenue in this case had no pecuniary jurisdiction to issue show-cause notice dated 5-4-2012 under sections 11 and 36 of the Sales Tax Act, 1990 as the case is involving adjustment of input tax of Rs, 4,653,699 under S.R.O.
No,555(1)/1996 dated 1-7-1996. It has been explained that order made under section 25(3) ibid can only be made with reference to section 36 and section 36 has to be read with the aforesaid S.R.O.
For the period till 10-6-2012 when it was rescinded. The appellant has relied on following case-law in support of the contention as to the pecuniary jurisdiction:--
(i) 2013 PTD (Trib.) 537---Messrs Zamindara Paper Mills (Pvt.) Ltd. Lahore v. CIR (Legal Division), RTO Lahore.
(ii) 2013 PTD (Trib.) 1001---Messrs Central Power Generation Company Ltd. Guudu, District Kashmor v. CIR Zone-I, RTO Lahore.
(iii) 2013 PTD 1189---Messrs Malik Enterprises, Rawalpindi v. Commissioner Inland Re -nue (Appeals)-Islamabad.
(iv) S.T.A. No, 126/LB/2012-Islam Engineers (Pvt.) Ltd. Lahore v. The Commissioner Inland- Revenue Zone VIII, RTO-II, Lahore
(v) 2013 PTD (Trib.) 316---Messrs Chenab Board, Faisalabad v. CIR(A) RTO, Faisalabad
(vi) 2011 PTD (Trib.) 619---Messrs EN EM Enterprises v. Additional Collector of Sales Tax and Central Excise, (Adjudication), Lahore
(vii) 2011 PTD (Trib.) 2086---Messrs Interloop (Pvt.) Ltd., Faisalabad v. Collector of Sales Tax (R. T.
0.), Faisalabad (viii)2006 PTD 219---Collectorate Central Excise, Karachi v. Syed Manzoor Hussain
(ix) 2011 PTD (Trib.) 1943---Messrs Flying Board and Paper Products Ltd., Lahore v. Collector, Sales Tax, Lahore
(x) 2011 PTD 2128---Messrs Aluminum Processing Industrial International (Pvt.) Ltd. v. Pakistan through Chairman Central Board of Revenue Islamabad and 2 others.
(xi) 2010 PTD 465---Collector of Customs, Model Customs Collectorate of PACCS, Karachi v. Messrs Kapron Overseas Supplies Co. (Pvt.) Ltd., Karachi.
4. We are inclined to agree with the contention of the learned A.R. Of the appellant as this Tribunal has already held in a number of cases that a show-cause notice issued beyond the pecuniary jurisdiction laid down in S.R.O. No, 555(1)11996 dated 1-7-1996 was not tenable. It is settled law that a thing required by law to be done in particular manner, must be done in that manner or not to be done at all under Article 4 of the Constitution of Islamic Republic of Pakistan, 1973. Accordingly, the show-cause notice dated 5-4-2012 issued in this case is held to have been issued without jurisdiction. It is also settled law that an edifice built on a faulty foundation collapses along with that foundation and resultantly the impugned assessment order and the Order-in-Appeal are held to be void.
5. The appellant has contended that the input tax is a statutory right under section 7 of the Sales Tax Act, 1990. It has been pleaded that the appellant purchased raw material on payment of Sales Tax and manufactured finished goods from those raw materials while these finished goods were cleared on payment of output tax. The appellant has explained that the complete record comprising Sales Tax Invoice Summaries along with Sales Tax Return cum Payment Challans and purchase register along with purchase invoices have been submitted and this fact had been admitted by the respondent No, 2 in Para 4 and Para 5 of the show-cause notice and the impugned assessm ent order respectively. It has been pleaded that the subject detailed record has also been enclosed as Annexure-X of the Memo. Of Appeal before this Tribunal. The learned A.R.
Has emphasized that the appellant is not an intentional defaulter and in fact has been a victim for no fault on his part. According to the learned A.R., the liability to deposit the Sales Tax collected by a seller of goods is on the supplier and it cannot be shifted to the buyer of goods under section 3 ibid. It has been argued that the Appellant ensured that the names of the suppliers were not in the list of suspected/black listed/de-registered units at the time of supply of subject goods and the appellant also confirmed the Sales Tax profile of the suppliers as 'Operative' from the FBR website/ respective Collectorate and they were filing their Sales Tax returns regularly. Reliance in this regard has been placed on: 2000 PTD 399 (H.C)---Superior Textile Mills Ltd. v. Federation of Pakistan, 2012 PTR 47(Trib.)---S.T.As. Nos. 73/LB/2011, 74/LB/2011 and 75/LB of 2011 and 2004 PTD 1893. It is argued that if at all the suppliers have committed any default, it has happened on account of negligence of Sales Tax Department who are required to grant the Sales Tax registration and authority to collect Sales Tax on behalf of the Government after proper verification and authentication of the antecedents of an applicant. The learned counsel has relied in this regard on: 2002 PTD 1805 (Messrs Kashmir Edible Oils Ltd, Lahore v. Secretary Revenue Division Islamabad) and 1997 SCMR
209. The learned A.R. Has also pleaded that even in case of blacklisted suppliers, it is settled law that innocent purchaser, who have bought goods from supplier "active" at the time of supply of goods, is entitled to adjustment of input tax. Reliance in this regard has been placed on: 2013 PTD (Trib.) 892---Messrs Deluxe Packages (Pvt.) Ltd., Karachi v. The CIR, Ad-II, RTO, Karachi, 2010 PTD (Trib.) 1631---Messrs Usman Fabrics Faisalabad v. Collector of Sales Tax, Faisalabad, 2012 PTD (Trib.) 453---The CIR, Zone-Ill, RTO, Faisalabad v. Messrs Kamal Fabrics, Faisalabad, and 1984 PTD 216---Silver Cotton Mills Ltd. v. Commissioner of Sales Tax, (West) Karachi. It has also been contended that out of the total Sales Tax amount of Rs, 4,653,699, Rs, 3,847,733 relate to invoices of less than Rs, 50,000 as explained in Annexure-X of the Memo. Of Appeal submitted before this Tribunal. It has been explained that this statement was submitted to the learned Commissioner Inland Revenue (Appeals) but no objection was raised thereon and resultantly the department has admitted its veracity. It has been pleaded that resultantly the objection relating to section 73 is not tenable. Reliance in this regard has been placed on: 2014 PTD (Trib.) 558 and (Messrs M. Ahmad and Co. v. Deputy Collector). The learned A.R. Has pointed out that in the impugned Assessment Order, the Deputy Commissioner Inland Revenue has not examined these contentions and has rather based his decision on the deposit of the alleged input tax adjusted amount in instalments while the learned Commissioner Inland Revenue (Appeals) has referred to non submission of record in violation of section 73 for partial rejection of the appeal. The learned A.R. On the other hand have explained that they deposited the instalments under threat of arrest and prosecution.
6. In our opinion the contention of the learned A.R. Of the appellant as to submission of record including statement showing substantial part of their sales being less than Rs, 50000 and hence outside the scope of the section 73, is substantiated by the record. The Department has not explained as to how the appellant has knowingly conspired with the suppliers of the goods rendering it to be covered by the definition of the term tax fraud. It has also been objected that the suppliers did not fall in the category of the suspected/ blacklisted/ de registered units at the time of the supply of the goods while the FBR website showed the profile of all the relevant suppliers as operative. It is strange that the Sales Tax department has granted registration with resultant authority to collect Sales Tax on behalf of the Government without proper verification and scrutiny of the antecedents of the suppliers in this case. It is observed that the respondents have not examined even a single judicial decision relied upon by the representative of the appellant. If the goods relating to the alleged invoices are proved to have been used for manufacturing finished goods which later on are supplied on payment if output tax, input tax relating to such ingredient/ raw materials can't be denied. It is evident that a supplier is liable to deposit the Sales Tax under section 3 of the Sales Tax Act, 1990. The various judgments quoted above in the contentions of the appellant lend support to our finding that the appellant is entitled to adjustment of the disputed input tax.
7. The appellant has also agitated the imposition of penalty and default surcharge on the basis of the amnesty schemes vide S.R.O. 563(1)/2012 dated 25th May, 2012, S.R.O. 606(1)/2012 dated 1st June, 2012, S.R.O. 768(1)/2012 dated 25th June, 2012 and S.R.O. 774(1)/2012 dated 27th June, 2012. It is argued that beneficial legislation should be given retrospective effect. Reliance has been placed on: 2005 SCMR 492, 2006 PTD 336---Messrs Sh. Wahid-Ud-Din Industries (Pvt.) Ltd. v. Additional Collector Sales Tax II and another and 2013 PTD 1037---Messrs Premier Kadanwari Development Company Ltd., v. Customs, Central Excise and Sales Tax Appellate Tribunal, Islamabad. In the impugned order by the learned Commissioner Inland Revenue (Appeals), the benefit of amnesty scheme has been denied on the ground that appellant has not fulfilled the conditions as laid down under these SRO's. However, the conditions not complied with, have not been dilated. We are inclined to agree with the contention of the learned A.R. Of the appellant that beneficial legislation should be given retrospective effect and in any case the appellant can't be subjected to default surcharge or penalty in this case in view of the SRO's relating to amnesty scheme. Hence, the penalty and surcharge levied by the department are deleted.
8. The appeal is allowed to the extent and in the above referred manner.