' The titles sales tax appeal has been preferred at the instant of registered person calling in question the impugned, order under section 45B of the Sales Tax Act, 1990 dated 27-9-2013 passed by the learned CIR (Appeal-III), RTO, Lahore.
2. Briefly stated facts are that the appellant registered person is a wholesaler. As per the order in original an information received from Directorate General of Intelligence, it was observed by the adjudicating authority that the appellant during the Tax Period 01/2009 to 04/2010 had claimed inadmissible input tax amounting to Rs,4,219,183 on fake invoices issued by certain persons belonging to a gang of fraudsters. On the basis of aforesaid, a show-cause notice bearing C. No, Audit Unit-02/131 dated 31-10-2012 was issued for violating the provisions of sections 3, 6, 7, 8, 8A, 14, 22, 23, 26 and 73 of the Act commuting the offences punishable under section 33 read with section 34 of the Act and sub-cause 11(2) read with section 2(37) of the Act requiring the appellant to explain as to why the above-mentioned amount of the sales tax should not be recovered from him along with default surcharge and penalty. Reply submitted by the appellant was found un- satisfactory. According to learned AR the appellant however, deposited partial amount of sales tax amounting to Rs,1,050,000 and submitted an undertaking for depositing the remaining sales tax amount before the end of 30th June, 2012. Therefore, the adjudicating authority through the impugned order under section 11(2) read with. Section 2(37) without issuing notices under section 25 or 38 of the Sales Tax Act, directed the appellant to pay remaining amount of sales tax of Rs,3,169,183 along with default surcharge under section 34(1)(c) and 100% penalty under section 33(13) of the Act. Against which first appeal was filed before the learned CIR(A) who has dismissed the appeal. Hence this appeal on the following grounds:--
(1) That the impugned Order-in-Appeal No":7 dated 27-9-2013 is against the law and facts of the case.
(2) That the respondent No,1 while passing the impugned order has over looked the relevant provisions of law and facts of the case. The rights and interests of the appellant were not watched by the respondents.
' That the respondent No,1 while passing the impugned order has over looked the facts on the ground that when the appellant has made purchases, the alleged suppliers of the appellant were registered by the department and was also operative. If they were bogus, fake and non-existent, their registration was made due to the negligence of the departmental functionaries, therefore appellant cannot be held responsible for the illegal acts/omissions of the departmental functionaries. Prima facie, the appellant has not acted knowingly, dishonestly or fraudulently and also had not been involved in any illegal activity. There is not an iota of evidence against the appellant from which it could be deduced that the appellant was involved in any of the activities mentioned in the show cause notice.
(4) That the appellant had purchased materials from the registered persons and they had issued Sales Tax invoices duly signed by the authorized officers of the respective suppliers in accordance with the provisions of Section 23 of the Sales Tax Act, 1990 and they have also filed their Sales Tax returns for the relevant Tax Period. The appellant had checked the status of the alleged suppliers and verified from the Website of the Federal Board of Revenue and it was reported to be active and it is also pertinent to point out here hat all the payments were made through baking channels after adhering the provision of section 73 of the Sales Tax Act, 1990. It is also pertinent to mention here that appellant has produced the payment proofs of these transactions before the respondents.
The suppliers also submitted their monthly sales tax returns and summaries of the relevant tax periods. The appellant did all possible precautions and endeavours as well as used all official resources to verify status and genuineness of its suppliers. When the appellant filed its monthly Sales Tax returns the Web Portal showed that the alleged suppliers were active and the Web Portal allowed the appellant to adjust input tax under section 7 of the Sales Tax Act, 1990 from the output tax. Hence the appellant has fulfilled all requisite conditions as lay down under sections 7 and 73 of the Sales Tax Act, 1990 for claiming input tax and paid the tax to the supplier bonafidely.
(5) That the respondent No,1 did not give due consideration to the arguments of the appellant qua section 2(37) of the Sales Tax Act 1990, while passing the impugned order that the appellant did not commit any tax fraud.
(6) That impugned order is based on the criminal cases registered by the Directorate of Intelligence and .Investigation on frivolous grounds without jurisdiction whereof constitutional writ petitions were filed before the Hon'ble Lahore High Court, Lahore and the same had been allowed by the Hon'ble Lahore High Court, Lahore whereof judgment is reserved. It is a settled principal of law that in case the initial actions/orders are without jurisdiction, void ab initio and of no legal effect then subsequent actions/orders in continuation of these proceedings in adjudication or appeal shall also equally suffer from illegality and would be without jurisdiction.
(7) That, even otherwise the recovery of said amount from the appellant is tantamount to double taxation and is ultra wires to the Act.
(8) That, the alleged contravention of provisions of sections 8 and 8A of the Act does not apply on the appellant and the allegation to contravene the provisions of sections 8(1) (ca) and 1(d) of section 8 is not only contrary to facts but also to the normal business practices. Pertinent to mention here that provisions of section 8(1) (ca) have also been declared illegal by the Hon'ble Lahore High Court, Lahore.
' That, invocation of sections 33 and 34 of the Act is also against the norms of justice as the Hon'ble Supreme Court of Pakistan in its judgment GST 2004 79 had settled the principle of sections 33 and 34 of the Act.
(10) That it is the duty of the supplier to pay sale tax on it supplies. If the supplier does not perform his duties, how the appellant can be held responsible for the acts done by it suppliers.
(11) That the entire liability of depositing Sales Tax in term of S.3(3) of the Sales Tax Act, 1990 was the exclusive responsibility of the suppliers they were duly registered at the relevant time and were regularly filing their monthly Sales Tax Returns and Summaries with Sales Tax department and that it is the sole duty of the Sales Tax department to check and find out as whether the suppliers were depositing their sales tax in government exchequer or not.
(12) That the appellant under the prescribed mechanism of value added tax, made payment of input tax to its suppliers and the appellant had no access to confirm that its suppliers had made payment in government treasury or not. Because this is the duty of the Revenue authorities to check whether the suppliers had made payment of their Sales Tax or not in the Government Treasury, especially when they were filing their monthly Sales Tax returns and summaries with the department.
(13) That is well fortified by the record that the appellant had not violated any provision of law and had acted ipso jure in accordance with law and procedure.
(14) that the allegation of the department is misleading, misconceived and contrary to the facts and records of the case.
(15) That according to the sub-Para (iii) of Para 2 of Sales Tax General Order 06/2003 dated 20-12- 2003 the invoices of appellant's suppliers are acceptable as their registration is not suspended and blacklisted when they made the supply to the appellant.
(16) That the whole proceeding initiated by the Directorate of Intelligence and Investigation FBR against the taxpayer/ registered person is without jurisdiction/lawful authority and also based on surmises, presumptions and guess work. The findings of the Investigating Officer are without evidence/merits, baseless and the aforesaid exercise is only to harass and exert pressure on the taxpayer/registered person.
(17) That the respondent No,1 is bound to decide the case within the limits of the Show-Cause Notice, but in spite of that respondent passed the impugned order beyond the limits of the show- cause notice.
(18) That the impugned order has been passed in haste, mechanical and in an arbitrary manner which is liable to be set aside.
(19) That the impugned order is based on conjectures and surmises, and is liable to be set aside.
(20) That the impugned order is based on miss-reading and non-reading of facts, documents on the record, so the impugned order is liable to be set aside.
(21) That there are so many other factual and law points which the appellant will raise at the time of arguments. The appellant is being burdened with heavy amount of tax without any reason and the appellant is being made victim of crime that he has not committed.
(22) That prima facie the appellant has good arguable case in his favour and balance of convenience also lies in favour of the appellant. The impugned order has no legs to stands.
(23) That if the impugned Order-in-Appeal No,7 dated 27-9-2013 and assessment Order No, 20/C dated 26-2-2013 passed by the respondents Nos.1 and 2 respectively are not set aside, the appellant will have to suffer irreparable loss to the worst magnitude.
3. The learned counsel, representative the appellant has argued that the appellant purchases material from the registered persons and they had issued proper sales tax invoices duly signed by the authorised officers of the respective suppliers in accordance with the provisions of section 23 of the Act and they have also duly filed their monthly sales tax returns for the respective tax periods. It is contended that the taxpayer had checked their status of the alleged suppliers and verified from the e-portal of the FBR having "OPERATIVE" status. It is argued that the taxpayer duly complied with the provisions of section 73 of the Act and the e-portal of the FBR allow the registered person to adjust the input tax under section 7 of the Act from the output tax. Hence, the appellant fulfils all the requisite conditions as laid down in the Statute. According to the learned AR it is trite law that the liability must be enforced against the person upon whom the same has been fixed by law. This view is fortified by the judgment of Tribunal in a case S.T.A. No,835/413/2011 dated 12-1-2012; wherein it was held that:-- "8. We have no ambiguity in our mind to state that the arguments/submissions made by the learned Advocate carry weight. The objection neither any charge of fake transactions nor of tax fraud either on the part of appellant has been levelled -in the show-cause notice without which the input tax paid by the appellant cannot be rejected. It is well settled principle of law of taxation that an assessee can be subjected to tax under the provisions of law which are clear and unambiguous. The rule of interpretation of fiscal statue are by now very known. These are that only words of the statue should be looked into."
' Reliance was also placed on another case decided by the Tribunal reported as 2012 PTD 619 (Trib); wherein it was held that:- "11. We have no hesitation in holding that if the sales tax department had acted in a negligent manner and certain omissions were committed by its functionaries by issuing registration certificates to the bogus, fake or non-existent parties, then the respondent/taxpayer should not be made to suffer for the acts or omissions of the sales tax functionaries. It is now well-settled principle of law that a party should not be made to suffer on account of act/omission on the part of the court or other state functionaries. The relevant portion from the judgment of the honorable Commissioner of Sales Tax (West), Karachi reported as (1984 PTD 216) which dealt with the issue involved in this appeal is reproduced as under:- "The duty to issue license was on the Department and if they have not taken care to issue license after proper verification and satisfaction and have gone on issuing license to bogus parties, or non-existent parties, the responsibility entirely lies upon the Department as a licensed manufacture, would only see the copy of license and will not make inquiries for establishing the genuineness of the licensee. How can this duty be imposed on the assessee to ascertain whether the party to whom license has been issued exists or not? Unless, it is established that the license has been cancelled before the sale knowledge, of the assessee it will be unjust to burden the seller or assessee to make inquiries about the genuineness of the license."
' He contended that Section 11(2) of the Act would only apply where person has not paid the tax due on supplies made by him or has made short payment or claimed input tax credit or refund which is not admissible under this Act. It is argued that very basis for assumption of jurisdiction, as per law is that it is obligatory upon the adjudicating authority to issue notice under section 25 or 38 of the Act. Admittedly, Sales Tax is a value added tax, grounded in unsupervised self-assessment scheme. The registered person/appellant deposited his tax along with the sales tax return. The investigation made into the case of the registered person can only be carried out through the process prescribed under sections 25, 38 and 72B of the Sales Tax Act, 1990 and there is no other mechanism under the Act to pick a case for adjudication under section 11 of the Act, hence the impugned order is void ab-initio.
' Reliance in this regard has been placed on a decision in I.C.A. No,79/2014 dated 22-5-2014 passed by the honourable Lahore High Court in the case of Messrs Lahore Electric Supply Company Limited v. Federal Board of Revenue, etc.; wherein their Lordships have held that: "8. Sales Tax is premised on a self-assessment paradigm, where the tax due is self-assessed by a taxpayer and deposited along with the monthly sales tax return. Supervision and monitoring of the self-assessment regime is through the process of audit provided under section 25 of the Act.
Once the taxpayer is selected through audit and the department is of the view that the taxpayer has an outstanding tax liability, the case undergoes assessment of tax through the process of adjudication under section 11 of the Act. Therefore, the self-assessed amount of tax due by the taxpayer in its sales tax return can only be altered through fresh assessment of tax under the section 11 of the Act, subject to the process of selection of a taxpayer though audit. Section 11 provides for assessment of tax where a taxpayer fails to file a return, or pays an amount which is less than the amount of tax due or has made short payment or has claimed input tax credit or refund which is not admissible. The section further provides that where by reason of collusion or deliberate act any tax has not been levied or has been short levied or has been erroneously refunded, or by reason of inadvertence, error. Or misconstruction any tax has not been levied or short levied or has been erroneously refunded, the Officer of Inland Revenue passes an assessment order along with penalty and default surcharge. Section 11 is the only provision under the Act which provides for assessment of tax through adjudication in case the self-assessed tax of the taxpayer, according to the department is unpaid or short paid for the above reasons. Post assessment if the taxpayer fails to pay the tax assessed, recovery can be initiated against the taxpayer under section 48 of the Act."
' The learned AR on the basis of these arguments has requested for cancelling the orders passed by the officers below.
4. The learned DR on the other hand, supported the impugned order of the learned Commissioner
(IR) (Appeals) for the reasons recorded therein. He submitted that in pursuance of the FBR's approval for investigation/criminal proceedings granted vide letter No,4(14)/ STM/2009-Pt/186947- R dated 2-12-2009 and No,4(4)/STM/2005 dated 26-3-2010 and conveyed vide the Directorate General Intelligence and Investigation-FBR, Islamabad's letter No,1(49)DGCl/Tech/09/6393 dated 8-12-2009 and No,1(49)DGCl/ Tech/09/1795 dated 29-3-2010, the proceeding was initiated against the appellant as it was established during the course of investigation in the matter certain gangs of fraudsters were involved in issuance of fake sales tax invoices to different manufactures/ wholesalers. The said gangs of fraudster also issued fake invoices to appellant to claim illegal/inadmissible input tax adjustment to the tune of Rs,4,219,183. It is contended that all the proceedings are as per law and no interference in the matter is required.
5. We have heard the rival arguments and perused the available record. We have also perused the citations mentioned supra referred by the learned AR. We are of the view that once the self- assessed tax due is considered to be correct and final, any order which suffers from patent illegality or is without jurisdiction, deserves to be knocked out. In this case no notices under sections 25, 38 and 72B of the Sales Tax Act were issued as per law to assume jurisdiction of the case. The impugned show- B cause notice being coram non judice and without lawful authority, hence the super structure built on the same should fall flat.
6. In view, of the forgoing facts and in the light of judgments quoted supra, the impugned orders of both the authorities below being illegal and void ab initio are hereby cancelled. This being so, appeal filed .By the registered person is accepted as prayed for.