SIKANDAR ASLAM (ACCOUNTANT MEMBER).---The above titled sales tax appeal has been filed at the instance of the appellant/registered person calling in question the Order-in-Appeal No.89 of 2013 dated 29-3-2012 passed by the learned Commissioner Inland Revenue (Appeals-II), Karachi, wherein Order-in-Original dated 28-6-2012 passed by the Deputy Commissioner Inland Revenue, Zone-IV, RTO, Karachi was allowed to be maintained.
2. Brief facts leading to filing of this appeal are that the appellant is a Private Limited Company engaged in the business of packaging business. The Adjudicating Officer/DCIR issued Show-Cause Notice to the appellant, wherein it was alleged that the appellant for the tax period from July, 2009 to February, 2011 had illegally claimed/adjusted inadmissible input tax against the blocked/blacklisted suppliers in violation of the provisions of sections 2(37), 2(9), 2(14) (a), 3( 1) (a) & (b), 6(1) & (2), 7(1), (2)(i)(ii), 8(1)(a), (ca) & (d), 8A, 21, 22(1), 23(1), 25, 26(1) and 73 of the Sales Tax Act, 1990 and directed to pay Rs.11,62,216 as principle amount of sales tax along with default surcharge and penalty under sections 34 and 33(11) of the Act ibid. The adjudicating proceedings culminated in passing Order-in-Original dated 29-6-2012 by ordering recovery of Rs.11,62,216 along with default surcharge and penalty.
3. The appellant feeling aggrieved filed appeal before the Commissioner Inland Revenue (Appeals), Karachi, who vide his impugned Order-in-Appeal No.89/2013 dated 29-3-2013 maintained the action of the DCIR. The appellant, feeling still aggrieved, has come up in appeal before us.
4. Number of grounds were taken at the time of filling of appeal, however, the only issue pertains to recovery of sales tax of Rs.11,62,216 along with default surcharge and penalty due to the allegation of illegally claimed/adjusted inadmissible input tax against the blocked/blacklisted suppliers.
5. The learned counsel for the appellant submitted facts of they case, grounds of appeal and raised some legal as well as factual 'objections. The facts and grounds of appeal are reproduced as under:-- Facts Main ground is in the appeal from appellant is disallowance of Input tax amounting to Rs.11,62,216 on purchases made from two parties as under: Input tax Input tax Messrs Ali Enterprises S. Tax Reg. No.17.02.9999-014-46 Rs.5,81,128 Messrs A.A. Enterprises S. Tax Reg. No.17.02.9999-390-73Rs.5,81,088
(1) Purchases from Messrs Ali Enterprises were made in February 2011 and. Messrs A.A. Corporation between July, 2009 to March 2010.
(2) Main reason for disallowance of Input tax was both parties were blocked/suspended on 21-2- 2012 and 24-12-2010 respectively.
(3) DCIR has adjudicated the order invoking sections 7(1), 2(1)(ii), 8(1a), (ca) & (d) 8A, 22(1), 23(1), 25, 26(1) and 73.
(4) CIR-Appeal-III, Karachi vide order dated 29-3-2013 conformed the disallowance and maintained the order with the observation that the parties had been suspended and subsequently as well they did not turned up for unblocking or restoration of suspension.
GROUNDS OF APPEAL
(1) That the CIR (Appeals-II), Karachi was not justified to reject the appeal filed by the appellant which is against the facts of the case and are contrary to law. They ignore the relevant and material considerations and are based on extraneous considerations.
(2) That the appellant order passed by the learned CIR (Appeals-II), Karachi and Assessment Order passed by the DCIR are also against good conscience natural justice and fair play and are also against the laws of equity.
(3) That the appellant order passed by the learned CIR (Appeals-II), Karachi and Assessment Order passed by the DCIR have erred by ignoring the fact that the appellant was rightly claimed/ adjusted the input tax.
(4) That the learned DCIR has charged Sales Tax amounting to Rs.11,62,216 on the issue of black- listed, blocked and suspended suppliers as per FBR web portal with penalty and default surcharge under sections 34 and 33(11) of the Sales Tax Act, 1990.
(5) That the appellant in compliance of the instructions as laid down under the Sales Tax Act, 1990 read with rules, prior to making any purchases, always checks the status of the supplier on-line in order to know whether they are active taxpayers or not. The appellant also takes care of the other conditions attached to claiming input tax on the said supplies as required under the Sales Tax Act, 1990 including the strict compliance of section 73 of the Sales Tax Act, 1990, which requires payment of purchases/sales tax through Banking Channels. The appellant has complied with all these instructions in this case and is not liable to make any shortfall in the sales tax due to the default on the part of supplier who were active taxpayers at the relevant time.
(6) That the main allegation against the appellant in the ^1i ugned order is that it has purchases the goods from dummy/blacklisted and suspend sales tax registered persons and was, therefore, not entitled to adjust/claim the input tax paid on the said purchases made from them. This is absolutely incorrect and is denied in totality. The appellant has made purchases from persons as stated in the show-cause notice who were available on the Active Taxpayers List of FBR, duly available on the website at the relevant time when the purchases were made. It is also a matter of record, that even subsequently such registered persons were available on the website as Active Taxpayers. Therefore this allegation, on the very basis of which the whole case is made out, is not sustainable. Further the appellant was legally bound to comply with the all requirement of the Sales Tax Act, 1990 which has been duly complied with.
(7) That no notice has been issued to any of the alleged dummy/blacklisted/suspended sales tax registered persons who were allegedly involved in the alleged fake sales tax invoices, while the appellant is being issued notices which is illegal and not sustainable, in the eyes of law.
(8) That the appellant has always complied with the provisions of Sales Tax Act, 1990 including section 73 of the Act ibid, hence no case could be made out against the appellant as the appellant cannot be held liable for the act of others.
(9) That the sole ground on which he impugned order has been passed is, that, the appellant has made purchases from blacklisted/suspended/dummy suppliers and hence all the input tax credit is to be disallowed, whereas it as an admitted fact that all the suppliers mentioned in the show- cause notice, at the relevant time when all these purchases were made, were Active Taxpayers, and were filing this returns online one the basis of which the appellant's returns were also accepted and hence the very basis of the show-cause notice and the order-in-original are false and fabricated and is based on frivolous information. There the impugned order is completely without jurisdiction.
6. At the very outset, the learned counsel for the appellant submitted that the treatment meted out by both the authorities below is erroneous and without application of judicial mind and liable to be annulled. He contended that the show-cause notice issued by the DCIR was vague and ambiguous in material particulars. The learned A.R. Referred to a number of decisions of this Tribunal in this regard and has vehemently contended that the said show-cause notice is not sustainable in the eyes of law. He further contended that various sections of Sales Tax Act were invoked while adjudicating the issue which are not relevant to the case and even the assessing officer himself has not discussed or touched any of these sections like section. 2(9), which deals with due date for filing of returns, section 2(14A) KIBOR rate, section 3(1)(a), taxable supplies made, section 3(1)(b), tax paid on goods imported into Pakistan, section 6(1), time and manner of payment, section 6(2), Tax paid by the Registered Person at the time of filing return, section 7(1), determination of tax liability, section 7(2)(i), holding of tax invoice, section 7(2)(ii), holding of bill of entries for purchase made through imports, section 22(1), Records keeping, section 23(1), Tax Invoices, section 25, Access to record, documents etc., section 26(1), filing of tax returns, section 2(37) Tax fraud, section 8(1)(ca), Goods on which Sales Tax has not been deposited in the Government treasury, section 8(1)(d), fake invoices, section 8(A), joint and several liability of registered person in supply chain where tax unpaid, section 21 De-registration, blacklisting and suspension of registration, section 73, Certain transactions not admissible. However, only. Section 2(37), i.e. Tax fraud, section 8A, Joint and several liability of registered persons in supply chain where tax unpaid, section 8(1)(ca), tax deposit into the Government treasury, section 8(1)(d), fake invoices and compliance of section 73 are relevant in this case but the DCIR, had neither touched upon or discussed any of the above sections while passing the Order-in-Original. It was further argued that the adjudicating officer failed to prove any collusion or tax fraud on the part of appellant and to prove the same onus was lying on the department and merely on the plea that suppliers had become blocked/suspended subsequent to the purchases made by the appellant cannot prove that the transactions were in the nature of tax fraud.
7. We have given serious consideration to the contention raised by the learned A.R. It has been noted that DCIR has tried to invoke series of provisions of Sales Tax Act, as mentioned in the show- cause notice such as 2(7), 2(9), 2(14) (a), 3(1) (a) & (b), 6(1) & (2), 7(1), (2)(i)(ii), 8(1)(a), (ca) & (d), 8A, 21, 22(1),23(1), 25, 26(1) and 73 of the Sales Tax. Act, 1990 but without specifying the allegations.
Perusal of series of sections, as mentioned above, shows that mostly these are just definitions and deals with the scope, time and manner of payment of sales tax and different procedure. The adjudicating officer was required to frame specific allegations based on the above provisions in the show-cause notice which has not been done. It is further noted that the impugned order has been passed without mentioning any section of assessment of tax. The Adjudicating Officer was required to pass the order under specific subsection of section 11 of Sales Tax Act, 1990 which in this case has not been done. It would be pertinent to refer to the relevant subsections of section 11 which reads as under: "11. Assessment of Tax and recovery of tax not levied or short-levied or erroneously refunded.---
(1) Where a person who is required to, file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of tax actually payable, an Officer of Inland Revenue shall, after a notice to show-cause to such person, make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with sections 33 and 34: Provided that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge and penalty, the notice to show cause and the order of assessment shall abate.
(2) Where a person has not paid the tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible under this Act for reasons other than those specified in subsection (1), an Officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with sections 33 and 34.
(3) 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 or 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 a notice requiring him to show cause for payment of the amount specified in the notice.
(4) 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 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 subsection, the amount of tax shall be recovered as tax fraction of the value of supply.
(5) No order under this section shall be made by an Officer of Inland Revenue unless a notice to show cause is given within five years, of the relevant date, to the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard:"
8. For the purposes of assessm ent, the officer was under obligation to specify the relevant subsections out of subsections (1), (2), (3) or (4) which deals with the assessment under different situations. Each of these subsections deals with a particular situation. It may be mentioned here that subsections (3) and (4) of section 11 were earlier part of section 36, which was omitted by the Finance Act, 2012 and subsections (1) and (2) of said section 36 were incorporated in section 11 as its subsections (3) and (4). The officer was under obligation to mention the relevant subsection out of subsections (1), (2), (3) or (4) of section 11 in his show-cause notice and the impugned order, which has not been done. Instead order has been passed without mentioning any relevant subsection of assessm ent under section 11 of Sales Tax Act, 1990. This Tribunal in its decision reported as 2004 PTCL 18 has laid down following distinctions between sections 11(2) and 36(1): "The difference between two provisions of law is that section 11(2) and (4) deals with non- payment/short payment of tax by the person from whom it was due on the supplies made by him and also where the claimed input tax credit or refund which was not admissible under the Sales Tax Act, 1990. As far the input tax credit/refund, subsection (2) of section 11 only covers such input tax credit/refund which had been claimed but was not admissible. On the other hand section 36 of Sales Tax Act, 1990 covers non- levy, short levy of sales tax and such amounts which have already been refunded erroneously. Subsection (1) of section 36 deals with the situation where non levy/short levy erroneous refund was made due to some collusion or deliberate act and subsection (2) of section 36 deals with the same situation but where the cause was inadvertence, error or misconstruction. With regard to erroneous refund section 36 is to get invoked where the amount has already been refunded erroneously as against that section 11(2), in addition to non- payment, short payment of tax due on supplies made by a person deals with "input tax credit or refund" which has been "claimed", "which is not admissible under this Act': Similarly, the Hon'ble Lahore High Court in its judgment reported as 2007 PTD 2265 has been pleased to hold as under:-- "10. To put it succinctly show-cause notice can only be served under section 36 ibid,
(a) Any tax or charge has not been levied or has been short-levied or has been erroneously refunded;
(b) Such non-levy, short-levy or erroneous refund has been caused by the reason(s) of "some collusion or a deliberate act" under subsection (1) of section 36 of the Sales Tax Act or owing to inadvertence or error or misconstruction per subsection (2)"
Likewise the honourable Supreme Court of Pakistan in its judgment reported as 2005 PTD 480 has held as under:-- "under section 36 of the Sales Tax Act, 1990, the cases of non-levy of tax or short levied or erroneous refund are divided into two categories. The first category of cases in which due to deliberate act, tax is not levied or short levied or erroneously refunded, are covered by subsection
(1) of section 36 ibid whereas subsection (2) of this section covers the cases in which sales tax was not levied or short levied or erroneously refunded by reason of inadvertence, error or misconstruction."
9. From the above judgments, it is amply clear that subsection (1) of omitted section 36, is now subsection (3) of section 11, which deals with the situation, where non levy/short levy or erroneous refund was made due to some collusion or deliberate act of the person who has authority or power to levy sales tax whereas subsection (2) of omitted section 36 covers the cases in which sales tax was not levied or short levied or erroneously refunded by reason of inadvertence, error or misconstruction. Obviously tax payer/appellant does not possess such power or authority.
Therefore, omitted sections 36(1) and 36(2) which are now subsection 11(3) and (4) respectively are applicable in a situation where the assessing/adjudicating officer has failed to levy, has short levied or refunded the tax by way of collusion or inadvertence. Likewise section 11(2) deals with non-payment/short payment of tax by the person from whom it was due on the supplies made by him and also where the claimed input tax credit or refund was allowed which was not admissible under the Sales Tax Act, 1990. As far the input tax credit/refund, subsection (2) of section 11 only covers such input tax credit/refund which had been claimed but was not admissible. However, adjudication officer in his show-cause notice has not mentioned any of the relevant subsections of section 11. By no stretch of imagination, it could possibly be construed that one would order cross the four situations envisaged in section 11 at the same time. Therefore, we fully agree with the contention of the learned A.R. That the show-cause notice was vague and ambiguous in material particulars. It needlessly mentioned a series of irrelevant sections of the Act without specifying the allegation or default and when it comes to the sections related to assessment there too confusion continued as no reliance on section 11 of the said Act has been placed. Accordingly, proceedings and the subsequent orders based on such a notice are not sustainable in the eyes of law. It is settled principle of law that without completion of prerequisite of show-cause notice and supply of the grounds/reasons in clear and explicit words to ascertain that under which subsection or section, the case would fall, the demand notice may have no legal consequences and thus the failure of the authorities issuing show-cause notice to disclose such grounds and reasons renders the notice invalid. In the instant case, it is not clear as to under which subsection or section of Sales Tax Act, the show-cause notice was issued. The show-cause notice carrying the defect of vagueness cannot stand to the test of judicial scrutiny. This Tribunal in its decision reported as 2011 PTD 808 has held that a vague show-cause notice fails to meet foundational legal requirements; therefore, demand created as a result thereof is not sustainable. Accordingly, the order of the adjudicating officer issued in consequence thereof and its subsequent confirmation by the CIR(A) in his impugned order is held to be of no legal consequences.
10. From the above discussion, it is crystal clear that the adjudication officer has assumed jurisdiction without lawful authority by initiating proceedings through vague and ambiguous show- cause notice. It is settled proposition of law that if law prescribes thing to be done in a particular manner, such provision of law is to be followed in letter and spirit. Reliance is placed on the judgments cited as 2001 SCMR 838, 2003 SCMR 1505, 2011 PTD 2480 at 2516, 2006 PTD 2567 (Lahore H.C.), PLD 1997 Lah.
692. Similar question also came up for consideration before the Hon'ble Supreme Court of Pakistan in case of Izhar Alam Farooqi v. Sheikh Abdul Sattar reported as 2008 SCMR 240 wherein the Hon'ble Court held as under:-- "if a mandatory condition for the exercise of a jurisdiction before Court, Tribunal or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revision equally suffers from illegality and is without jurisdiction."
11. Respectfully following the above judgments of Superior Courts and in view of the vague and ambiguous notice containing irrelevant D provisions of law with no specific allegations attached thereto as well as finalizing the Order-in-Original and confirmation thereof by the learned CIR (Appeals) under no provision of law in the appellant's case are held to be without lawful authority.
12. Regarding facts of the case and applicability of the relevant sections, the learned counsel for the appellant further submitted that the treatment meted out by both the authorities below acted in excess of their jurisdiction as they had gone beyond the scope of the show-cause notice while making their decisions. He stated that the provision of section 2(37) of the Sales Tax Act, 1990 had wrongly been invoked in the instant case as the show-cause notice did not disclose any such act attributed to the appellant which could fall within the ambit of section 2(37) of the Act. To invoke this section, it is absolutely necessary to allege that the registered person has committed any act of tax fraud with concrete documentary evidence knowingly, dishonestly or fraudulently and without any lawful excuse. So the initial burden of proof lies on the department and not on the accused person. Prerequisites for a show-cause notice as per law have not been fulfilled< in the instant case which requires a person being alleged should be provided a complete and comprehensive charge-sheet which he could reply and defend. It is repeatedly held by the Superior Courts that prior to final determination of the liability by the competent forum/authority even commission of offence becomes a matter of further enquiry. Therefore, both the orders of the authorities below are contrary to the allegations contained in the show-cause notice and liable to be annulled on this score alone as any collusion or tax fraud on the part of the appellant has not been proved. Reliance was placed on the findings of this Tribunal in the case of Messrs Rain Drop Lahore v. Commission Inland Revenue (Appeals III)-Lahore reported as 2012 PTD (Trib) 885, wherein it, has been observed:-- Quote S.2(37)---Tax fraud---Fake invoices---Adjustment of input tax against invoices issued by the fraudster gang---Mandatory ' condition precedent for tax fraud is that registered person has acted knowingly, dishonestly or fraudulently and without any lawful excuse committed tax fraud--- Not and iota of evidence was available on record where from it could be deduced that the registered person had intentionally, knowingly or dishonestly or fraudulently committed tax fraud by claiming in put tax adjustment against the sales tax invoices issued by the fraudster gang--- Even the audit/contravention report coupled with the show-cause notice did not spell out or it could be proved by the department that the registered person had claimed illegal input tax adjustment with prior knowledge regarding fakeness of the sales tax invoices---Registered person was not intentional defaulter and was equally cheated by the fraudulent persons and fraudsters charged tax from the registered person---Revenue had wrongly invoked the provision of S.2(37) of the Sales Tax Act, 1990 in the show-cause notice which was liable to be struck down.
Unquote With regard to Section 8(A) Honourable High Court in W.P. No. 3515/2012 decided on 22-11-2012 in the case of Messrs D.G.Khan Cement Company Limited v. Federation of Pakistan and others reported as 108 Tax 226 has held at Para 33.
Quote It is also important to refer to section 8A of the Act which deals with a complete new specie of violation of law i.e., non-deposit of tax in the government treasury by the supplier. This does not cast any allegation of collusion on the part of the buyer or supplier but simply requires that the buyer should have had "knowledge" that the supplier will not (eventually) deposit the sales tax in the exchequer. The department has to establish that the taxpayer had "knowledge" and then proceed against the taxpayer. The impugned Show-Cause Notice does not, however, set up a case against the petitioner under this provision of law, Section 8A is different from section 8(1)(ca) and is triggered by the requirement of "knowledge" of the past practice of the supplier. It appears that the respondent department has mistakenly tried to read section 8A into section 8(1)(ca).
Unquote Similarly with regard to 8(1)(ca) in the above referred Judgment in clause (15) above, the Honorable High Court in their Judgment in para 35 have already declared the same as unconstitutional.
Quote For the reasons elaborated above, Section 8(1)(ca) of the Sales Tax Act, 1990 besides being illogical and absurd, offends Articles 23 and 24 of the Constitution and is hereby declared to be unconstitutional and, therefore, struck down. As a consequence, impugned Show-Cause Notice dated 20-10-2011 and Order-in-Original dated 6-1-2012 arising out of section 8(1)(ca) of the Act are also set aside. For the above reasons, this petition is allowed with, no order as to, costs.
Unquote The Honorable High Court in the above referred case has also dealt with Section, 8(1)(d) in para 32 and define the "Collusion or tax fraud" under Section 8(1)(a) and is reproduced as under: Quote In fact, in case of "collusion" or "tax fraud" section 8(1) (d) if the Act is attracted. The said provision disentitles a registered person from deducting or claiming input tax if there is a "fake invoice." The term "Fake Invoice" has not been defined in the Act but has the potential of covering a wide range of irregular and fraudulent transactions. Any taxable supply that is sham, collusive, based on tax fraud will necessarily render the invoice i.e., the material evidence documenting the transaction, to be false, collusive, and fraudulent. Fake invoice as a legal term includes the popular market terminology of "flying invoice". Hence any invoice that evidences a fake, fraudulent or sham transaction is known as a "fake invoice". Any distortion in taxable supply tainted with "tax fraud" or "collision" between buyer and seller renders the tax invoice defective and fake. The concern of the FBR and the Federal Government, urged before the Court above, is fully addressed by Section 8(1)
(d) of the Act. Hence, the contention of the respondents urging this Court to read collusion and fraud into section 8(1)(ca) is not convincing. Unquote With regard to the compliance of Section 73, it was contended by the learned A.R., that all information including proof of payment by cheques was provided to the assessing officer but he failed to give any finding in this regard and to establish non-compliance of the provisions of section 73. The learned A.R. Provided complete breakup, of payments along with cheque numbers bank details, date of payments and bank statements which clearly establish that all payments were made through crossed cheques and verifiable from bank statements.
13. It was further contended that when the appellant made purchases both the alleged suppliers were very much active and operating and were blocked/suspended much after the purchases made in the following manner: Purchases Made Blocked onPeriod after Purchases Messrs Ali Enterprises February 2011 February 2012One Year Messrs A. A.
Corporation July-09 March-10December 2012Over Two Years
14. From the above, it shows almost after over two year suppliers were blocked for which reasons are also not known, whereas appellant had fulfilled all responsibilities by making compliance of section 73 i.e. All payments were made by payees account through cross-cheques and while filing sales tax returns during months of purchases both parties were active/operative as such the appellant cannot be penalized if subsequently the parties become non-operative or blocked.
15. The learned A.R. Further provided complete details of purchases and payments as under, verifiable from bank statements: S. No.Party NameInv.
No.Date of InvoiceAmount Exd. S.TS. TaxAmount Including S. TaxDate of Paym entCheque No.Band NameAmount Paid 1Ali Enterprises83942-2-11854,640145,289999,9294-5-11 7777719MCB999,929 2Ali Enterprises84104-2-11854,640145,289999,92931-5-110621752MCB999,928 3Ali Enterprises84287-2-11854,560145,275999,8354-6-11 0621758MCB700,000 9-6-11 0621762MCB299,835 999,835 4Ali Enterprises845610-2-11854,560145,275.999,8359-6-11 621763MCB999,835 3,418,400581,1283,999,528 3.999,527 MESSRS A.A. CORPORATION S. No.Party NameInv.
No.Date of InvoiceAmount Exd. S. TaxS. Tax Amount Including S. TaxDate of PaymentCheque No.Bank NameAmount Paid 1A.A.
Corp.273-7-0982,758.8613,241,4296,000.2819-8-091070975ABL96,000.00 2A.A.
Corp.1743-9- 09188,417.2230,146.75218,563.976-11-093672678ABL218,564.00 3A.A.
Corp.1905-9- 09538,819.4386,211.11625,030.5414-11-093672685ABL625,031.00 4A.A.
Corp.2403-10- 09387,855.9362,056.95449,912.889-12-093672699ABL449,913.00 5A.A.
Corp.2485-10- 09321,749.1251,479.86373,228.989-12-093672700ABL373,229.00 6A.A.
Corp:2714-11- 09387,967.8062,074.85450,042.6521-1-106316780ABL450,043.00 7A.A.
Corp.5061-2-10210,669.7833,707.17244,376.9518-5- i 08305050MCB244,377.00 8A.A.
Corp.525,3-2-10220,371.9735,259.52255,631.4918-5-109678201MCB255,632.00 9A.A.
Corp.5752- 3- 10360,779.6357,724.74418,504.3723- 6- 109678230MCB418,505.00 10A.A.
Corp.5904- 3- 10390,899.6062,543.94453,443.5426- 6- 109678231MCB453,444.00 11A .A .
Corp.5975- 3- 10289,999.7146 ,399 .95336,399.6623- 6- 109678232MCB336,400.00 12A.A.
Corp.6066- 3- 10251,309.8040,241.37291,751.3723- 6- 109678233MCB291',752.00 TOTAL:3,361,798.85581,087.834,212,890,36 4,212,890.00
16. It was pointed out that both the suppliers were subsequently restored/de-blocked by the FBR, however again suspended/blocked on 18-5-2012 and 3-7-2013 respectively which proves that both the suppliers are genuine, bona fide and existed as such the DCIT point of view that both suppliers were bogus or CIR (Appeals) observation that suppliers did not got restored or came up for de- blocking subsequently, does not carry any weight or substance under the relevant provisions of law.
17. It was further contended that in number of judgments, the Appellant Tribunal and Higher Courts have held that if at the times of purchases, the sellers were active and not blocked and compliance of section 73 has been made, input tax cannot be disallowed. Reliance was placed on 2011 PTD (Trib.) 162 in S.T.A. No,555/LB of 2009, dated 20-7-2010.
Quoted Subsections 2(37), 2(14), 6, 7, 8, 8A, 22, 33(1), 34(c ) & 73--Tax fraud Input tax-Show-cause notice on the ground that refund was received on invoices issued by the black-listed units-appellant contended that supplier was black-listed on 30-8-2007 while the refund related to the year 2004-- -Validity---At the time of making supplies to the appellant, the supplier in question was alive and doing business---Any default or flaw on the part of appellant could not be taken into consideration to burden the appellant with the incidence of taxation and use as pretext to refuse the claim of refund---Even otherwise at the time of issuance of show-cause notice, the name of the supplier stood removed from the list of blacklisted persons---Letter of the department whereby name of the Supplier was deleted from the black-listed persons, there was no allegation with regard to tax .Due and only reason which weighed with the department for declaring it black-listed was that its name was not found on the given address---Such anomaly was resolved subsequently and upon verification of the premises, the registered person/supplier was very much found on the given business address--- Adjudication order as well as order-in-original passed by the authorities below were set aside by the appellate tribunal and the show-cause notice issued was cancelled and the appeal was accepted. [p.164]A.
We have heard both the parties and also perused the Orders of the authorities below. After hearing the contentions urged at the bar by the representatives of both the sides, we feel persuaded by the assertions made by the learned A R. It is a matter of record, that at the time of making supplies to the appellant, the supplier in question was alive and doing business, hence any default or flaw on the part of the appellant cannot be taken into consideration to burden the appellant with the incidence of taxation and use as pretest to refuse the claim of refund. Even otherwise at the time of issuance of show-cause notice, the name of the supplier stood removed from the list of black listed persons. Besides, the letter of the department whereby name of the supplier was deleted from the blacklisted person, there was no allegation with regard to tax due and only reason which weighed with the department for declaring it blacklisted was that its name was not found existing on the given address, however, the aforesaid anomaly was resolved subsequently and upon verification of the premises, the registered person/supplier was very much found on the given business address. In this view of the fact, the adjudication, order as well as order-in-original passed by the authorities below, are set aside and the show-cause notice issued is hereby cancelled. The appeal of the registered person stands accepted.
19. The learned A.R. Of the appellant further relied upon the various judgments of the superior Courts and the Tribunal cited as S.T.A. No,312/LB/2014 of Lahore Bench, Lahore in the case of Messrs Fine Packages v. CIR and 2012 PTD (Trib.) 946 in the case of Messrs N.Z. Exports (Pvt.) Ltd. Faisalabad v. CIR, S.T.A. No,269/LB of 2010, dated 23-2-2012. In the case of CIR-RTO, Lahore v. Messrs Eagle Cables (Pvt.) Ltd. Cited as S.T.A. No,421/LB/2013, it has been held as under:-- Para 5 After hearing both the parties, going through the relevant record and the case-law relied upon by the AR, the learned CIR (Appeals) found the arguments of the learned AR carrying weight and observed that: "I feel persuaded to hold that the action of the department is not within the ambit of law while rejecting the input tax adjustment made by the appellant in the presence of the "Active Status" of the supplier at the time of material purchase. It has been observed that at the time of purchases, the supplier was not black listed/inactive and the payment against the alleged purchases was made through banking channel in a mode prescribed under section 73 of the Sales Tax Act, 1990 and as per subsection (3) of section 21, those buyers who acquired goods prior to even black listing and had fulfilled the conditions as laid down under the provisions of section 73 of the Sales Tax Act, 1990 can adjust the input tax. Even otherwise Rule 12(5) cannot be applied retrospectively therefore it is inferred that the operation of the department is not within the ambit of law while rejecting the input tax adjustment of the appellant especially when the supplier was not black listed at the time of material purchases and compliance of section 73 was also made at the time of procurement of goods. Since, the appellant has fulfilled its part of the liability and there is nothing on record to prove as to whether the appellant itself has committed any offense with prior knowledge and defrauded the Government Exchequer, therefore the justice demands that it should not be punished for the wrong doing, if any of the other persons. The demand is therefore not, sustainable under the law, hence deleted. However, the department may verify and reconcile the payment of tax as per law giving appeal effect of this order to the appellant to determine as to whether or not the plea of the appellant, is correct. The issue stands disposed of accordingly".
Para 8 The orders of the authorities below have been perused carefully in the light of arguments of both the rival parties and the case-law relied upon by the A.R. Of the registered person. We find that the learned D.R has failed to substantiate his point of view with any material evidence to rebut the findings of the learned CIR (Appeals ). Under these circumstances, we are convinced that the learned CIR (Appeals) was fully justified in directing to delete the demand created against the registered person. The order of the learned CIR(Appeals) is, therefore, maintained and the appeal filed by the department stands dismissed.
20. The learned A.R. Also contended that the appellant purchased all the raw-material from the registered persons against the proper sales tax invoices under the provisions of section 23 and fulfilled other legal obligations by making payment through banking channel and also in accordance with the provisions of section 73 of the Sales Tax Act, 1990. The payments were made comprising price of material and sales tax as per law. Moreover, status of suppliers was checked and verified from the website of the FBR which was showing the status as active. Beside the suppliers were also submitting summaries of the relevant period to the Department. The learned A.R. Also added that the appellant had taken all the possible precautions and endeavors as well as used all official sources to verify the status and genuineness of the suppliers. Such acts clearly shows that the appellant had discharged all its legal and moral duties to establish that supplier were active and operative at the time when the transactions were made and also remained active during the investigation carried out by the detecting agency.
21. The learned A.R. Specifically read the show-cause notice before us and categorically pointed out that the detecting agency had miserably failed to make out a case of tax fraud against the appellant or even establish any violation of the provisions of law which could make the refund/input adjustment claimed by the appellant unlawfully and the amount in question so recoverable. He emphasized that the allegations contained in the show-cause notice relate to certain alleged acts of the suppliers of the appellant which even otherwise not true because all the requisite conditions as are laid down in sections 7 and 73 of the Act for claiming input tax/claimant of refund and payment of the tax to the supplier were fulfilled. It was further argued that entire liability of depositing tax in terms of section 3(3) of the Act is the exclusive responsibility of the suppliers who are or were duly registered at the relevant time and were regularly filing their monthly returns and summaries to the department. In fact, it is the duty of the sales tax authorities to check and find out as to whether the suppliers are depositing their sales tax in the Government Ex-chequer or not. Here the department failed to accomplish his official obligations rather it shifting responsibilities on the appellant's shoulder which is highly unwarranted and uncalled for.
22. The learned A.R. Further elaborated that section 3(3)(a) explicitly lays the liability to pay tax on the person making supplies in the words as "section 3(3) the liability to pay the tax shall be, . (a) in case of supply of goods, of the person making supply." Therefore, the department can demand the amount of tax from the supplier if the supplier had not deposited the same. The applicant firm maintained records in accordance with the law, sold goods and issued invoices against supplies according to the provisions of section 3. The applicant made compliance of section 6 and paid net tax payable after adjustment of input tax from output tax within the prescribed time as specified under section 6 of the Act. The appellants claimed input tax adjustment against the goods consumed for furtherance of taxable activities as described under section 8 of Act ibid. And filed sales tax return along with annexure as required by section 26 of Act, ibid. The learned counsel for the appellant in support of his stance, submitted copies of the Bank Statements along with the judgments of the higher judicial forums as mentioned in the grounds of appeal.
23. The learned D.R., on the other hand, supported the orders of the authorities below and contented that the appellant had claimed adjusted input tax on fake/flying invoices illegally. There is no legal provisions in the Sales Tax Act, 1990 which allows such illegal input tax adjustment and claimed refund. He further stated that the disallowance of input tax has been made rightly as both the parties were subsequently blocked/suspended, however he could not answer for disallowance of input tax in spite of the fact that appellant has made compliance of section 73 of the Sales Tax Act. The learned D.R. Also did not explain as to how these transactions comes within the ambit of tax fraud in terms of section 8 of the Sales Tax Act.
24. We have heard the arguments of both the sides and have perused the relevant records. We observed that theprovisions of section 8A of Sales Tax Act, 1990 are not attracted in the appellant's case. To attract such provisions, it is imperative that the department must prove that when the appellant firm received a taxable supply from other registered E person, those are (i) that the registered person was in the knowledge or (ii) has reasonable grounds to suspect that some or all of the tax payable in respect of that supplies or (iii) any previous or (iv) subsequent supply of goods supplied would go unpaid. It is for the respondent to prove the above four ingredients or any one of them as per Articles 117 and 118 of the Qanun-e-Shahadat Order, 1984. It is explained that "Qanun-e-Shahadat Order, 1984 is applicable to all judicial proceedings in or F before any Court including a Court Marshal, a Tribunal or other authority exercising judicial or quasi-judicial Proceedings. The provisions of section 8A simply requires that the buyer should have the "knowledge" and "reasonable grounds" to suspect that the supplier will not eventuality deposit the sales tax in the national exchequer paid by him and in order to attract the provisions of section 8A initial burden lies on the department to establish that the taxpayer had prior "knowledge" and "reasonable grounds" to suspect the supplier that the sales tax G paid to him shall be remained unpaid in its eventuality and then proceed against the taxpayer. The applicant, in the present case, under the prescribed mechanism of value added tax (VAT), has made payments of input tax, to hi suppliers and he had no access .To confirm that the alleged supplier had made the payments in the Government treasury or not.
25. The applicant receiving taxable supplies was legally obliged to check "Validity and Veracity" of the supplying person through electronic verification which was obviously done at the time of transaction. This was the duty of the tax functionaries to check as to whether the supplier had made payments of tax due to them especially when he was filing his monthly sales tax returns and summaries of sales and purchases with the department. The impugned Show-Cause Notice does not disclose that the appellant was in knowledge or had reasonable grounds to suspect that some or all of the tax payable in respect of supply or any previous or subsequent supply of the goods supplies would go unpaid, therefore, liability to pay tax jointly and severally under section 8A of the Act would come into play only when it is established with corroborating material evidences that where registered person receiving taxable supply from another registered person is in the knowledge or has reasonable grounds to suspect that some or all of the tax payable in respect of that supply would go unpaid. The position in the case is very much different due to the reason that the appellant after verifying the status and genuineness of the supplier from e-Portal of FBR, made the payments of in-put tax to them and fulfilled all the responsibilities lies on his shoulders. Mere allegation that the alleged suppliers are blacklisted, suspended and fake is not enough without corroborating evidence for denying the lawful right of input tax of the buyer. Therefore the appellant cannot be evolved as a joint liable and induction of contravention does not qualify.
Reliance is placed on a recent reported judgment of the Honourable Lahore High Court, Lahore in the case of "Messrs D. G Khan Cement Company Ltd v. The Federation of Pakistan and others" in Writ Petition No,3515 of 2012, wherein it was laid down that:-- "It is also important to refer to section 8A of the Act which deals with a complete new species of violation of law i,e,, non-deposit of tax in the government treasury by the supplier. This does not cast any allegation of collusion on the part of buyer or supplier but simply requires that the buyer should have had "knowledge" that the supplier will not (eventuality) deposit the Sales Tax in the exchequer. The department has to establish that the taxpayer had "Knowledge" and then proceed against the taxpayer. The impugned Show-Cause Notice does not, however, set up a case against the petitioner under this provision of law. Section 8A is different from Section 8(1)(ca) and is triggered by the requirement of "knowledge" of the past practice of the supplier."
26. It is further held that the provisions of section 8A of the Sales Tax Act, 1990 cannot be applied retrospectively as laid down in a judgment of the Honourable Supreme Court of Pakistan, reported as 2007 PTD 67 (SC Pak). The same view was followed by the Hon'ble Sindh High Court in its judgment reported as 2007 CLD 1642, wherein it was laid down as under:-- "(D) INTERPRETATION OF STATUTES---- ---------- retrospective operation of statue Vested rights could not be taken away save by express words or necessary intendment in the. Statue. Where that was not done, statue must not be presumed to operate retrospectively". 2007 CLD 1642 In this regard, reliance is further placed on the judgment of honourable Supreme Court. Of Pakistan reported as 2005 SCMR 492, where it was held as under:-- EXECUTIVE ORDER..
Retrospectively---requirement---Executive orders or notifications, which confer right and are beneficial, would be given retrospective effect and those which adversely effect of invade upon vested right cannot be applied with retrospective effect".
On the basis of above, the provisions of section 8A of the Act are not applicable in the appellant's case.
27. The learned A.R. Further convinced us on the issue of section 8(1)(ca) that there is no violation of this section. It was argued that the allegations pointed out in the Show-Cause notice are totally illegal as all the registered persons were operative in the FBR records and exists at the- time of purchase of goods. The respondent purchase goods from the registered FBR suppliers who, in return had issued sales tax invoices to appellant firm and respondent claimed input tax adjustment on valid sales tax invoices, as the ATL List allowed the respondent to conduct business with these suppliers which has now alleged in show-cause notice by department. There is no section in the Sales Tax Act, 1990 which define the criteria to understand abnormal behavior of suppliers registered by department other than records of department obtained from alleged suppliers. Tax profile on e-portal of FBR a single source shows the status of any registered person at the time of business transactions. The appellant firm provided purchase invoices issued by the suppliers, as an evidence to claim input tax adjustment required by the law. The department has powers to conduct post refund. Audit and call for any record. It was argued that the appellant firm maintains and retains all records in accordance with sections 22 and 24 of the Sales Tax Act, 1990.
Hence, the question of non- availability of records did not arise in the appellant's case. During the proceedings, all relevant records of purchases i,e, purchase invoices; purchase register and inventory records were produced to the department along with written arguments which were not considered by the adjudicating officers. With reference to section 8(1)(ca)(d), it is further held that it is liability of the department to conduct inquiry in order to ascertain the facts that why the registered suppliers not declared correct supplies in their records, why they concealed the supplies and why they did not deposited due tax in the national exchequer. It is also liability of the department to conduct verification or complete audit of the records of alleged suppliers, to issue them show-cause notice pointing out discrepancies .
28. The appellant firm purchased goods from the registered suppliers and paid due tax to the buyer at the time of payment of goods including sales tax. The appellant firm provided record/purchase invoices issued by the suppliers, as an evidence regarding claim of input tax adjustment. Hence, the question of non-availability of records did not arise in this case. It is liability of the department to conduct inquiry in order to ascertain the facts that why the registered suppliers not declared correct supplies in their records, why they concealed the supplies and why they did not deposited due tax in the national exchequer and in consequence of this issued them show-cause notice pointing out discrepancies. The check and balance rest with department and not with the third party. In this case, the appellant firm is third party and not responsible of activities of alleged suppliers.
29. We intend to agree with the contention of the learned A.R. That the provisions of section 8(1)(ca) of the Act, are not attracted in the instant case placing reliance on the judgment of the Hon'ble Lahore High Court in the case of "Messrs D.G. Khan Cement Company Ltd. v. The Federation of Pakistan, and others" in Writ Petition No 3515 of 2012, wherein the provisions of section 8(1)(ca) had already been declared unconstitutional being illogical and absurd, offending Articles 23 and 24 of the Constitution, 1973. The relevant part of the said judgment is reproduced hereunder:- "For the reasons elaborated above, section 8 (1) (ca) of the Sales Tax Act, 1990 besides being illogical and absurd, offends Articles 23 and 24 of the Constitution and is hereby declared to be unconstitutional and therefore, struck down. As a consequence, impugned show-cause notice dated 20-10-2011 and Order-in-Original dated 6-1-2012 arising out of section 8(1)(ca) of the Act are also set aside. For the above reasons, this petition is allowed with no order as to costs.
30. As for as violation of section 8(1)(d) of the Act is concerned, there is no violation in the appellant's case. These provisions can only be invoked in cases where charge of "Collusion" or "tax fraud" has been levelled and established by the department as the "said provision disentitles a registered person from deducting or claiming input tax adjustment or credit made on the strength of a "fake invoices". The word "something that is not what it purports to be "and" to make or "fake" has been defined by the Black's Law Dictionary, 8th edition to be reconstruct falsely" at its page
635. Any invoice duly issued by a registered supplier cannot be purported to be a fake document, once it is established that the same is duly incorporated in sales shown by the supplier in his summary statement and also declared in his sales tax monthly return for the period in question particularly in the cases where its payment is also transacted through banking channel as prescribed under the Act. Conversely, if a registered person holds a tax invoice which is not incorporated in the supplier's records or in its respect payment is also made clandestinely, it can be said that such person is making a fake business transactions. Any invoice that evidences a fake, fraudulent or shame transaction is known as a "fake invoice" and any distortion in taxable supply tainted with "tax fraud" or "collusion" between buyer and seller renders the tax invoice defective and fake. It is well established principle of law that "a party making an allegation must bring material evidences to prove the irregular, false, collusive and fraudulent transaction." The department has not been able to place on record any evidence by which it can be referred that the invoices issued 0 by the supplier were fake. Any action which is based upon no evidence is not permitted by any law of the land. The appellant, who has admittedly paid the input tax covered by the invoices, cannot be denied the statutory right of claiming its adjustment.
31. In view of above, neither the charge of "tax fraud" nor "collusion" has not been established against the appellant with his suppliers to evade sales tax by way of fake invoices. Even the department could not prove and bring on record any evidence for collusion of the applicant with his suppliers without which, the provisions of section 8(1)(d) are not attracted in the instant case.
Accordingly, the whole proceedings are infested with inherent legal infirmities and are required to be annulled.
32: Reliance is placed on a reported judgment of the Honorable Lahore High Court, Lahore in the case of "Messrs D. G Khan Cement Company Ltd v. The Federation of Pakistan and others" in Writ Petition No,3515 of 2012, wherein it was laid down that:-- "In fact, in case of "collusion" or "tax fraud" section 8(1)(d) of the Act is attracted. The said provision disentitles a registered person from deducting or claiming input tax if there is a "fake invoice". The term "Fake Invoice" has not been defined in the Act but has the potential of covering a wide range of irregular and fraudulent transactions. Any taxable supply that is shame, collusive, based on tax fraud will necessarily render the invoice i,e,, the material evidence documenting the transaction, to be false, collusive, and fraudulent. Fake Invoice is a legal term includes the popular market terminology of "flying invoice". Hence, any invoice that evidences a fake, fraudulent or sham transaction is known as a ~ "fake invoice". Any distortion in taxable supply tainted with "tax fraud" or "collusion" between buyer and seller renders the tax invoice defective and fake. The concern of the FBR and the Federal Government, urged before the court above, is fully addressed by section 8(1)
(d) of the Act."
33. Regarding tax fraud under section 2(37) of Sales Tax Act, 1990, the learned A.R. Comprehensively argued that the taxpayer is not involved in "tax fraud" because mandatory condition put forth for committing tax fraud is that the alleged person should have done any act knowingly, dishonestly or fraudulently and without any lawful excuse. If at all a supplier has committed any tax fraud, it has been done on account of department's negligence and the buyer cannot be held responsible for slackness of the tax functionaries. In order to attract the provisions of section 2(37), initial burden lies on the department to show that the taxpayer, knowingly, dishonestly or fraudulently and without any lawful excuse had done any act or caused any act to be done or has Q omitted to take any action or has caused the omission to take any action in contravention of duties or obligations imposed under this Act or Rules. In this case, the supplier of the appellant firm was registered by the department and given sales tax number after due verification of record which was provided by the appellant to the concerned ACIR at the time of proceedings. The act of registration and verification of the antecedents of the supplier and appellant firm was carried out by the government functionaries, therefore, as per the principles as laid down in various judgments of superior courts, "the appellant cannot be condemned and punished for the wrong doings or the acts of the state functionaries." Reliance is placed- on judgments of reported as 2002 SCMR 134 and (PLD) 1994 (H.C. Lah.(sic)).
34. Our attention is also invited drawn towards retrospective application of section 21, wherein black listing orders were given retrospectively effect by rejected input tax. In this regard, reliance is placed on different judgments of superior Courts of Pakistan reported as 2001 SCMR 1161, 2002 PTD 976, Sales Tax Appeal No,1402/LB 2008 tilted as Messrs A.T. Fabrics Faisalabad v. Collector Sales I ax Faisalabad and Messrs Usman Fabrics, Faisalabad in S.T.A. No,1334/LB/09 dated 25-2-2001 and others, wherein it was held that:-- "It is well settled principle of law that the executive orders or notification which confer rights and are beneficial, would be give retrospective effect and those which adversely affect or invade upon vested right cannot be applied with retrospective effect".
35. It is a well-settled principle of law as per latest judgment reported as 2014 PTD 558 (Trib.) under the titled S.T.A. No,952/LB of 2012 dated 29-8-2013, wherein it has been held that:- "if blacklisting or suspension of registration of a supplier is effected subsequent to a period in which purchases and bank payments were transacted could not be made a tool to deprive of the buyer of a valuable right accrued in his favor prior to such blacklisting or suspension the registration of any supplier due to subsequent default whatsoever on his part."
36. In this regard, we also gain support from the landmark judgment of august Supreme Court of Pakistan in case of "Government of Pakistan v. Messrs Village Development Organization" reported as 2005 SCMR 492 wherein it has been laid down that:-- "The executive orders or notifications, which confer right and are beneficial, would be given retrospective effect and those which adversely affect or invade upon vested right cannot be applied with retrospective effect".
37. Accordingly, the titled taxpayer could not deprive from his valuable right through retrospective application of section 21 for blacklisted suppliers.
38. Regarding default surcharge and imposition of 100% penalty by the adjudication officer under section 33(13) of the. Sales Tax Act, 1990, the learned A.R. Argued that both the authorities below have erred in law and on facts of the case in imposing/upholding penalty. We have no doubt in our mind that the penalty proceedings under the fiscal laws are independent proceedings. These have nothing to do with the criminal proceedings that may be pending anywhere else particularly when no evidence relating to such proceedings was ever provided to the appellant during the original or appeal proceedings. The learned CIR (Appeals) has erred in not following the judgments of superior courts cited by the AR in this regard which were binding on him. Perusal of the impugned order further shows that the learned CIR (Appeals) has confirmed 100% penalty under section 33
(13) of the Sales Tax Act, 1990, as according to him the act of alleged unlawful adjustment comes within the ambit of tax fraud defined in section 2(37) of the Sales Tax Act, 1990. The appellant is a duly registered person having STRN. By simply leveling allegation of tax fraud does not make out a case for the Department to subject the appellant to penalty equal to the amount Of alleged inadmissible adjustment. Reliance by the assessing officer on the provisions of section 2(37) to justify levy of penalty is misplaced. Section 2(37) envisages that "tax fraud" means knowingly dishonestly or fraudulently and without any lawful excuse amounts to the commission of tax fraud, if the accused does any act or causes to do any act or omits to take any action or causes, to take any action in contravention of duties or obligations imposed under the Sales Tax Act or Rules or instructions Mere under with the intention of understanding the tax liability or underpaying the tax liability for two consecutive tax periods or overstating the entitlement to the tax credit or tax refund to cause loss of tax. Facts and circumstances of the case elaborately discussed in the foregoing paragraphs clearly show that none of the ingredients constituting tax fraud as stated above have been shown to exist by the assessing office in his show cause or the impugned order. Onus to prove that any of the ingredients of the provisions of section 2(37) were involved in the appellant's case was of the department which has not at all been discharged. A bare perusal of the show- cause notice and the impugned order shows that no case of tax fraud is made out whereby the burden of proof could be shifted to the appellant. It has been held by the Hon'ble Sindh High Court in its judgment reported as 2004 PTD 868 that:- "In order to attract the provisions of section 2(37) the initial burden lies on the department to show that an assessee knowingly, dishonestly or fraudulently and without any lawful excuse, has done any act or has caused to be done or has omitted to take any action or has caused the omission to take any action in contravention of duties or obligations imposed under the Sales Tax Act or Rules or instructions issued thereunder with the intention of understating the, tax liability or underpaying the tax liability. Once this burden Is discharged by the Department only then the burden is shifted to the assessee to establish that the act done was without any knowledge on his part or without any intention of dishonesty or fraud and was done with any lawful excuse."
39. In view of the above, imposition of 100% penalty without first establishing that the appellant committed anything wrong or contravened any provision of law knowingly and dishonestly is patently illegal, harsh, unjustified and without any logic. Therefore, confirmation of the action of the DCIR to impose 100% penalty on the strength of section 2(37) of the Act by the CIR(A) is void ab initio and without any justification.
40. It is now settled that no penalty could be imposed without first establishing the mens rea.
Reliance in this regard is placed on the ratio of the judgment of Hon'ble Lahore High Court reported as 2004 PTD 1048. The appellants in this case were charged and finally found to have received different sums of sales tax refunds on the basis of fake invoices. On the issue of penalty the Hon'ble High Court was pleased to observe as under:- "The nature of penalty provisions in taxing statutes and the proceedings held, to bring them home are criminal or at least quasi-criminal in nature. In such like proceedings proving of mens rea, in the view of their Lordships in re: Additional Commissioner of Income Tax v. Narayandas Ramkishan 1994 PTD 199 is an essential ingredient. It was held that the Revenue was under a statutory obligation to prove that the assessee had acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of his obligation... The principle that was laid down by their Lordships needs to be kept in mind by all revenue authorities while enforcing penalty provisions. It is that; "Levy of penalty is a matter of discretion which must be exercised by the authorities judiciously on consideration of relevant circumstances. Penalty should not be imposed merely because it is lawful to do so. If the offence is of a technical or venial nature, the authorities will be justified in refusing to levy penalty."
41. Reliance is placed on another judgment of Hon'ble Sindh High Court reported as 2007 PTD 901.
The Hon'ble High Court has held that nature of penal provisions being quasi-criminal, existence of mens rea was an essential and mandatory condition for levying penalty and Department must establish mens rea before levying such penalty.
42. Reliance is also placed on the ratio of decision of this Tribunal reported as 2011 PTD 693 wherein in the identical circumstances the Tribunal deleted the penalty with the observations that the penalty has not only been levied in a haste but also without substantiating mens rea, which is an integral part of penalty proceedings.
43. In view of the facts and circumstances as discussed above, we hold that Order-in-Original dated 29-3-2012 is illegal and void ab initio. Consequently, the impugned order of learned CIR (Appeals) is vacated and the order passed by the DCIR is hereby annulled.
44. As a result, the appeal filed by the appellant is allowed.