1. Titled appeal has been filed at the instance of the Registered Person/appellant calling in question the impugned order dated 25-8-2014 passed by the learned CIR(Appeals-III), Lahore on the following grounds:-
(1) That the order of learned Commissioner Inland Revenue, Appeals-III, Lahore is unjust, unfair, devastating law and facts of the case.
(2) That the confirmation of re-audit and reinvestigation by the CIR Appeals in the presence of adjudication order as well as investigation audits holding the field, is against the doctrine of finality and principle of justice and for taxpayer it amounts to double jeopardizes. These facts are on record which were ignored by the CIR, Appeals while deciding the appeal.
(3) That no provision in the law justifying and allowing any second audit for same period and for same party, therefore, second investigative audit is illegal and void.
(4) That the notice under section 38 of the Sales Tax Act, 1990 issued by the Deputy Director Intelligence and Investigation, Lahore was without lawful] authority on the basis of no written permission from FBR has been taken before issuance of notice.
(5) That the Order-in-Original vide No.137 dated 26-6-2014 is void ab initio, without jurisdiction, against law and facts of the case.
(6) That the Order-in-Original after passing the earlier adjudication order hit by doctrine of functus officio and is encroachment on the revisional jurisdiction of the Federal Board of Revenue and Commissioner Inland Revenue vested under section 45-A of the Sales Tax Act, 1990 on the terms and condition specified therein. The CIR Appeals not entertained the issue while passing the appellate order.
(7) That no audit report served upon the appellant before issuance of show-cause notices, which was mandatory under section 25 of the Sales Tax Act, 1990. The Chief Commissioner in his letter dated 28/11/2013 pointed out deficiencies in contravention report which were not readdress by DCIR as well as D G l&I, Lahore.
(a) That there is no third party verification regarding sales and purchase.
(b) That there is no laboratory test regarding samples.
(c) That the observed that the contravention report is based on presumption and surmises.
(8) That the auditor while framing the contravention report for mala fide reason deliberately ignored facts. The entire proceedings and contravention report is mala fide based on misstatement of facts and circumstances of the case. The team of I&I visited the premises and not only observed the manufacturing of Rexene but also took samples of the Rexene.
(9) That the purchases of Fabric was shown by the appellant and was reflected in column OTHER LOCAL ZERO RATED of , ANNEXTURE-A of the Sales Tax Return. These purchases were from unregistered persons and are zero rated. These are verified from the e-portal of the FBR. The CIR Appeals ignored these facts while confirming the DCIR action on the issue manufacturing of REXENE. As per Articles 2(8) and 92 of the Qanun-e-Shahadat Order, 1984 the presumption of truth attached to official record. The observation contained in the judgment of Honourable Supreme Court of Pakistan reported as 2003 SCMR 501 are also applicable in the instant case.
(10) That the supplies of REXENE made to registered persons, who are active and operative up to date and reflected in e-portal of FBR whereas the DCIR mentioned these units as dormant units.
2. This is baseless, unfair and unjust.
(11) That this case was only victimized to fulfilling the shortcoming of revenue target of 30th June 2014 of the concerned RTO.
2. Brief facts of the case as narrated in the body of impugned order are that on the basis of contravention report received from the Directorate of Intelligence and Investigation, Lahore, the appellant was found to have claimed inadmissible input tax of Rs.248,544,863 on the basis of fake zero rated sales during tax periods from July 2008 to June 2013. Out of aforesaid amount of input tax, sales tax refund amounting to Rs.205,115,466 had been sanctioned by the department From scrutiny of sales tax record and refund files, the Assessing Officer observed that the appellant had declared zero-rated supplies of Rexene, manufacture of which required use of fabric as essential ingredient. However, the appellant had neither purchased any fabrics nor its consumption was shown in the inventory record. It was thus concluded that the appellant had manufactured and supplied plastic sheets only, which were not zero- rated and were liable to payment of output tax at standard rates.
3. ' On this basis, a show-cause notice was issued under section 11(3) of the Act on 15-5-2014, requiring the appellant to explain why sanctioned refund amounting to Rs.205,115,466 should not be recovered from him on account of inadmissible input tax/refund on zero rated items. Rejection of refund claim of balance amount of Rs.43,429,397 was also confronted. Besides, explanation was also sought on intended recovery of output tax amounting to Rs.248,544,863 along with default surcharge under section 34 and penalty under sections 33(11)(c) and (13) of the Act. Appellant submitted his reply without any documentary evidence.
4. ' During assessm ent proceedings, the appellant filed writ petition before the Lahore High Court, Lahore on the point of jurisdiction and issuance of show-cause notice. As per directions of the honourable Lahore High Court, Lahore, the assessing officer decided the matter of assumption of jurisdiction vide order No.113 dated 10-6-2014, and provided another opportunity through notice dated 18-6-2014 for reply on 26-6-2014. On the due date,, no response was given by the appellant.
5. Therefore, the assessing officer passed the impugned order directing the appellant to deposit sales tax amounting to Rs.576,608,840 under section 11 of the Act along with default surcharge under section 34 and penalty under section 33(11) of the Act.
3. Being aggrieved the taxpayer approached the learned first appellate authority who vide an order dated 25-8-2014 allowed partial relief to the taxpayer. Still dis-satisfied with the impugned findings of the B learned CIR(A), the taxpayer is in 2nd appeal before this Tribunal.
4. Both the parties have been heard and relevant orders perused. It was argued by the learned counsel of the appellant that the taxpayer is an AOP, running plastic industry and derives income from manufacturing and sale of plastic sheets and Rexene. The taxpayer register with the Sales Tax Department in 1996 as Manufacturer of plastic industry (copies of registration certificate) and manufactured only Rexene till 2005 which has been classified in Chapter 59 of Custom Tariff with Pakistan Custom Tariff (PCT) head 5903.10 (Textile Fabric, Impregnated, Coated, Covered or, Laminated with Polyvinyl Chloride) and thereafter the taxpayer started production of the industry plastic sheets as well. This fact proved from the invoices, which are placed on record. The REXENE is zero rated vide S.R.O. 509(1)/2007 dated 9-6-2007 read. With S.R.O. 283(1)/2011 dated 1-4-2011 and S.R.O. 1125(1)/2011 dated 31-12-2011, Rexene as given in PCT head 5903 along with explanation.
5. It was submitted that zero rated sales were made through registered person in the above mentioned tax period while DCIR observed that declared supplies were made dormant units like ACME International, Lahore mentioned in the show-cause notice. The said units were neither suspended/ black listed nor block/ inactive at the time of supplies and up to date. It was argued that these units were operative in FBR record i.e. www.Fbr.Gov.Pk and all the sales tax returns were accordingly prepared, verified and submitted. It was submitted that the returns of the buyer showing complete details of supplies and purchases for-the period under consideration.
6. It is contended that the taxpayer is a manufacturer of Rexene in the tax period under consideration and used textile fabrics for making of Rexene. The said fabric was poor quality manufactured in KHADIES in the area of KASUR, these manufacturers were not registered with Sales Tax Department, and furthermore the fabric is covered under zero rated schemes. The taxpayer purchased the fabric from the unregistered persons and declared in column of OTHER LOCAL ZERO RATED ANNEXTURE "A"of the sales tax return. These are verifiable on the e-portal of FBR. As per Articles 2(8) and 92 of Qanun-e-Shahadat Order, 1984 the presumption of truth attached to official record. The observation contained in the Judgment of Honourable Supreme Court of Pakistan reported as 2003 SCMR 501 are also applicable in the instant case. The ratio decided in the said judgment in that "Articles 2(8) and 92 official record presumption of truth -in- absence of anything to the contrary, presumption of truth would be attached to official record".
6. ' It is further stated that any illegality or default done by sales tax department, the taxpayer should not be suffer on account of act/ omission on the part of the court or other state functionaries.
7. Reliance in this respect was placed on the reported judgment cited as 2002 SCMR 134 and 1997 SCMR 209.
8. ' It is further contended that the fabric purchase verified from the factory gate passes, these gate pass reflect the goods, entered in the factory with his quantity. The gate pass produced at the time of hearing in the court. That the taxpayer mistakenly not mentioned the fabric purchases in its return with this belief that these were made from unregistered persons and is zero rated, so it has no impact on the sales tax as well.
9. ' It is further contended that the zero rated falls in section 4 of the Sales Tax Act, 1990, the provision starts with non obstantc clause and read as under: "Notwithstanding the provisions of section 3 the following goods shall be charged to tax at the zero per cent"
10. ' The above provision clearly and squarely exclude the charging section 3 of the Sales Tax Act, 1990 that when charging section is excluded that transaction falls outside the tax. It was argued that since the charging section has been excluded and is not applicable, therefore, all the provision of the Sales Tax including sections 6, 7 and 26 are excluded which deals with payment of sales tax and filing the return. In this respect case-law reported as 2013 SCMR 85, 1997 PTD 1555 ( SC) and 2005 PTD (Trib.) 965.
11. ' The assessment under section 36(1) of. The Sales Tax Act for the period July 2008 to June, 2012 on the basis of audit has already been completed and investigating audit under section 38 of the Sales Tax Act, 1990 for the period July, 2010 to June, 2012 also in the field. In the presence of already existing adjudication order of the subject matter, we have been state (sic) as under:-- ' The notice under section 38 of the Sales Tax Act, 1990 issued by the Directorate Intelligence and Investigation, Lahore without specific written authorization permission from FBR, so the notice under section 38 is without any lawful authority. The powers for conducting the enquiry/investigation of any taxpayer by the Directorate of Intelligence and Investigation has been prescribed in Rule 39(C) of the STGO 3 of the Sales Tax Act, 1990 which provides that the staff of Directorate General of Intelligence and Investigation shall not undertake any enquiry/investigation of any registered person except under specific written authorization from FBR. The Officer Inland Revenue had not been authorized by the board to conduct enquiry/investigation of the appellant. In this respect case-law reported as 2012 PTD (Trio.) 105 and read as under:-- "The powers- of the respondent for conducting the audit of any taxpayer according to learned AR has been prescribed in Rule 39(c) of the STGO 03 of the Sales Tax Act, 1990 which provides that the staff of Directorate General of Intelligence and Investigation shall not undertake any audit of any registered person except under specific written authorization from the C.B.R. In each such individual case. He has stressed that the appellant-depirtment was not authorized by the Board to conduct the audit in this case hence the whole exercise is patently illegal and all subsequent proceeding on the basis of illegal audit are also void in the eyes of law without any authority".
12. ' The show-cause notice issued by DCIR under section 11(3) purporting to conduct. Re-audit and Re-investigation in the presence of adjudication orders holding the field is against the doctrine of finality and against the principle of justice and also amount to exposing the taxpayer to double jeopardizes. That the issuance of show-cause notice by DCIR after passing the earlier adjudication order hit by, doctrine of functus officio and beyond the jurisdiction and encroachment on the revisional jurisdiction of the Federal Board of Revenue and Commissioner Inland Revenue vested under section 45-A of the Sales Tax Act, 1990 on the terms and conditions specified therein. In this respect case-law reported as 2004 PTD 3020 (Karachi N.C.) and read as under:-- "2. We have given our anxious consideration to the facts and circumstances of the case and the contentions raised by the learned Advocates for the parties. For the purposes of answer to question No.2, the facts are admitted and we need not to dilate on it in any detail. It is admitted fact that order dated 4-2-2000 (issued on 8-2-2000) competently passed by the Additional Collector -II, deciding the same issue as agitated in the second show-cause notice and after a full-fledged hearing and deliberation it was decided that the Eno Fruit Salt enjoyed exemption from the payment of sales tax. The order was open to appeal under section 45 (as it stood before substitution by Finance Act, 2000) and was subject to suo motu revision by the Board. Neither any appeal was preferred by sales tax department assailing the findings nor passed by the Additional Collector Adjudication, attained finality having binding effect on the sales tax department is against all principles of administration of justice; secondly, it is discriminatory in nature, as any order passed in adjudication not assailed in appeal by an assessee, is always treated to be final and the same principle should be applicable to the department; thirdly, it militates against the principle applicable to the tax matters, that the issues once settled and accepted by the department shall not be allowed to be deviated, because it will create uncertainty which has always been deprecated and disapproved by the superior Courts, Legislature as well as the Board itself . Fourthly, in the present case, the issue stands decided by an adjudication order. The Legislature has gone by enacting section 65 in the Sales Tax, 1990 to the extent of recognizing practice which is result of inadvertence. The learned Tribunal is also aware of this provision which has been referred in the concluding part of the impugned order; fifthly, a vested right has been created in favour of appellant with the order of the adjudication authority which cannot be taken away by executive branch of the sales tax department by initiating fresh proceeding on the same point.
13. For the foregoing reasons, it is held that the sales tax department could not re-agitate a matter which has been decided against it vide Order-in-Original No.9 of 2000. The said order could be assailed in appellate or revisional proceeding which were not initiated and therefore, it holds the field and in the presence of the earlier order dated 4/2/2000, another order contrary to the said order cannot be allowed to hold the field for simple reason that two contrary orders cannot exist at one and at the same time. All the subsequent proceedings commencing with the issuance of letter dated 22/6/2001 issued by the Senior Auditor and further proceedings on the basis of second show-cause notice dated 17-10-2001 are without jurisdiction and void ab initio. The question No.2 is answered in negative."
13. ' On the issue of section 45-A of Sales Tax Act, 1990 the Honourable Supreme Court of. Pakistan decided a case through land mark judgment reported as 2011 PTD 1232 concerned paragraph are 8 of the judgment:-- "This argument was aptly met by Mr. Makhdoom Ali Khan, Sr. Advocate Supreme Court, who pointed out that the Board, under section 45-A of the Sales Tax Act, is empowered to examine the decision or order of an officer of the Inland Revenue, which according to section 2(18) read with section 30 of the Sales Tax Act does not include the Board itself. The 'officer of the Inland Revenue' is defined as an officer appointed under section 30. The latter gives a list of such officers. They are appointed in relation to a particular area by the Board of Revenue. For obvious reason the list does not include the Board. On the plain reading of section 45-A of the Sales Tax Act read v, ith other relevant provisions, there can be no two opinions that the Board does not, under the said provision, possess any authority to examine the legality or propriety of its own orders".
14. ' That the show-cause notice issued by DCIR calling the books of accounts from the taxpayer and conducting audit on grab of section 11(3) of the Sales Tax Act, 1990 without due process of selection of taxpayer under section 72-B of the Act, by the Federal Board of Revenue and requisition of record by the Commissioner Inland Revenue under section 25(1) of the Sales Tax Act, 1990 is void ab initio, illegal and without lawful authority in this respect case-law reported as 2012 PTD 1815 in the case of chen one.
15. ' That the show-cause notice calling sales tax record by DCIR from the taxpayer is transgression from his authority and usurping and encroaching the jurisdiction of the Commissioner Inland Revenue, hence this act is incompetent, invalid and wholly without jurisdiction and liable to be stuck down.
16. ' Objection on procedural issue That show-cause is illegal and void on .The basis of following grounds: That it is not known against which case show-cause notice has been issued as no name has been mentioned in the subject of the show-cause notice.
17. That the copy of the audit report has not been provided and without examining the audit report no comments can be given on the accuracy of the facts mentioned in the show-cause notice.
18. That it appears that show-cause notice has been issued under the pressure of. Directorate of Intelligence and Investigation.
19. That the perusal of the show-cause notice shows that no mind has been applied by the author of the show-cause notice and simple facts as communicated have been passed on.
20. That the jurisdiction cannot be assumed without the audit by the auditor or by any other agency.
21. The copy of the audit report, even reference of the audit report is missing in the show-cause, notice That the entire story has been built up that the taxpayer has not shown the purchase of fabrics.
22. Therefore, the manufacturing of Rexene is doubtful.
23. ' It is pertinent to mention the observations of your predecessor in this case. Reference is particularly, invited to the following document:-
1. That contravention report is signed by auditor and there is no finding from the Commissioner regarding accuracy of the contravention report. Your attention is invited to FBR Circular No.3(16)STP/2000, dated 8-10-2001, paragraph No. 3 wherein it has been specifically directed that no adjudication jurisdiction can be assumed without observation of accuracy of the contravention report which reads as under:-- ' C. No. 3(16)STP/2000 Islamabad, the 8th October, 2001.
24. ' SUB: Special audit reports under section 32A of the Sales Tax Act, 1990 for preparation of contravention reports.
25. ' Paragraph No.3. It is therefore, ruled that the Executive Collectorates should first prepare proper contravention cases on the basis of the said audit reports, specifically detailing the offences committed and the provisions of law violated. These contravention reports should be expeditiously sent to the concerned adjudicating officer, who is responsible to ensure that show-cause notice issued in each case within time limit prescribed under the law.
2. The above FBR ruling has been examined by ITAT in a case reported as 2009 - PTD - 2074 (Trib.) wherein the Hon'ble Tribunal has held as under in paragraphs Nos. 8 and 9:- ' Paragraph No.8.---The objection of the learned counsel for the appellants on the score that the Sales Tax Ruling published in the Business Recorder, dated 31-10-2001 has been violated, also carries great force. In order to appreciate this argument it will be imperative to underscore the said Sales Tax Ruling which is reproduced as follows:- ' The Central Board of Revenue (CBR) has curtailed the discretionary powers of the Collectors of Adjudication by restraining them not to directly issue show - cause notice to the taxpayers on the basis of audit reports.
26. ' The Collectorates of Adjudication would only issue such notices after receiving contravention reports from the tax collectors pertaining to violations committed by taxpayers or tax officials as per audit reports.
27. ' The Sales Tax department has notified this decision through a ruling issued here on Tuesday.
28. ' According to the new procedure, the Executive Collectorates would initially formulate a comprehensive contravention report on the basis of audit observations indicated in the audit reports compiled by the Auditor General's office. This report should clearly elaborate the violation and specific section and rules of Sales Tax Act, 1990, which were not properly followed by the concerned person. The collector of sales tax would submit the contravention report to the Adjudication Officer, who would then issue show-cause notices to the relevant person within the specific time period.
29. ' Presently, the adjudication authorities were unclear about the issuance of show-cause notices on the irregularities pointed in the audit reports.
30. ' The CBR has directed all collectors of sales tax to submit the contravention reports to the concerned Colletorate of adjudication for the issuance of notices to particular audit paras.
31. ' The tax authorities were of the view that the audit reports give a general perception of the irregularities, Which should be processed by the Executive Collectorates before initiating any legal action against the taxpayers.
32. ' Paragraph No.9.---The above sales tax ruling leaves no scintilla of doubt that after the same the adjudication officers cannot conduct adjudications unless they first received contravention reports by Executive Collectorates. Also it is pretty clear from the wording of the sales tax Ruling that such contravention reports cannot be issued by officers below the rank of a Collector. The argument of the learned departmental representative that this is only an internal procedure and cannot be used by assessee/registered persons hardly as any merit. The very nature of the text of the sales tax ruling so also its publication in the press confirms that it is not meant only for internal use but other for regulation of jurisdiction. In Abida Rashid v. Secretary PLD 1995 Karachi 587, it was held that the power vested in any authority can only be exercised by that authority, in default whereof the entire action would be without jurisdiction, void ab initio and of no legal effect. In Rashid Ahmad v. The State PLD 1972 SC 271, it was held that where the mandatory condition of exercise of jurisdiction by a Court, Tribunal or authority was not fulfilled, then the entire proceedings would become illegal and all subsequent order would be without jurisdiction. This was a case where the sanction for prosecution was not granted by the prescribed authority and it was held that all subsequent actions including cognizance by the judge were without jurisdiction. On this score the entire action and the series of orders were annulled. Equally in Abdul Razzaq v. Muhammad Sharif PLD 1997 Lahore 1, it has been held that where power is given to do a certain thing in a certain way, there that thing must be done in that way or not at all and all other methods of performance not so prescribed are necessarily forbidden. The series of authorities just referred on the point sufficiently clinch issue. The Sales Tax Ruling, which is published in the Business Recorder, dated 31-10-2001, has not been factually disputed by the departmental representative. It is not the case of the department that such a sale tax ruling does not exist. In the wake of such a factual position we have no other option but .To apply the series of binding precedents as cited above which would mean that after the said Sales Tax Ruling all actions initiated by adjudication authorities, without contravention reports, or all actions initiated by the adjudication authorities, without contravention reports, or all actions initiated by the adjudication authorities, upon contravention reports given by officer below the rank of a collector would be completely coram non judice and void. Similar would be the out come of all subsequent orders based upon such unlawful adjudication proceedings which are thus vacated for yet one more reason.
33. ' The Chief Commissioner in its letter dated 28-11-2013 has categorically stated that since there are following deficiencies in the contravention report. Therefore, it is not reliable:--
(3) That there is no 3rd Party verification regarding sale and purchase.
(4) That there is no laboratory test regarding samnles,
(5) It has been observed that contravention reinort is based on presumptions and surmises.
(6) That in Chief Commiisioner letter dated 28-11-2013 Annex of facts prove that the team visited the premises and not only observed the, manufacturing of Rexene but also took samples of the Rexene.
(7) That the auditor while framing the contravention report for mala fide reason deliberately ignored that above facts. The entire proceedings initiated and contravention report is mala fide based on misstatement of facts and circumstances of the case.
34. ' The perusal of the above submissions clearly establish that entire case is based on presumptions and is just fishing enquiry to create bogus demand against the taxpayer. The show-cause notice under reference is a 2nd show-cause notice and according to law the 2nd show-cause notice on the same issue and the same basis is legally not possible. This issue has been examined by superior courts and consistently held that is such eventuality the show-cause notice and any adjudication based on 2nd show-cause notice is illegal and void. The show cause expresses that this is 2nd investigative order for the same party and for the same period of assessment. There is no provision in the law justifying or allowing any 2nd audit for the same period and for the same party. Therefore, the show-cause notice based on 2nd investigative audit is illegal and void. In depth enquiry from a senior officer be got conducted to ascertain the true facts and not to be swa yed by the bogus and fabricated contravention report.
35. ' It is also observed that the appellant filed writ petition before the honourable Lahore High Court Lahore on the issue of jurisdiction. The honourable court vide order dated 26-5-2014 bound the assessing officer to pass a speaking order first before further proceedings. The assessing officer on the issue of jurisdiction pass order on 10-6-2014 which was appealable. As per law he was bound to allow the taxpayer 30 days time for filing of appeal but he finalized the assessment within 16 days which shows the mala fide intention of the assessing officer.
36. ' The learned D.R. On the other hand opposed the arguments advanced by the learned counsel of the taxpayer and submitted that both the officers below .Have acted in accordance with the law. At the end he prayed for maintaining of the impugned findings recorded by the learned CIR(A).
37. ' For the foregoing reasons and in view of the case-law cited supra, we are of the view that the entire proceedings and contravention report is mala fide based on misstatement of facts and circumstances of the case. Further the CIR (Appeals) ignored the fact while confirming the DCIR action on the issue manufacturing of REXENE. We are also of the view that the taxpayer is a manufacturer of Rexene in the tax period under consideration and used textile fabrics for making of Rexene. The said fabric was poor quality manufactured in KHADIES in the area .Of KASUR, these manufacturers were not registered with Sales Tax Department, and furthermore the fabric is covered under zero rated schemes. The taxpayer purchased the fabric from the unregistered persons and, declared in column of other local zero rated sales. These are also verifiable on the e- portal of FBR. It is further observed that the fabric purchase verified from the factory gate passes, these gate passes reflect the goods entered in the factory with its quantity. The gate pass produced at the time of hearing in the court.
38. ' On the issue of section 45-A of Sales Tax Act, 1990 the Honourable Supreme Court of Pakistan decided the issue in a reported as 2011 PTD 1232 wherein it has been held that the Board, under section 45-A of the Sales Tax Act, is empowered to examine the decision or order of an officer of the Inland Revenue, which according to section 2(18) read with section 30 of the Sales Tax Act does not include the Board itself. Further the 'officer of the Inland Revenue' is defined as an officer appointed under section 30 and the later gives a list of such officers. They are appointed in relation to a particular area by the Board of Revenue. For obvious reason the list does not include the Board.
39. On the plain reading of section 45-A of the Sales Tax Act read with other relevant provisions, there can be no two opinions that the Board does not, under the said provision, possess any authority to examine the legality or propriety of its own orders". The order of the apex court is on all fours to the facts of instant case, hence keeping in view all the discussion and case-law cited supra we hold that the taxpayer is a manufacturer of Rexene and the contravention report was made on the basis of conjectures and surmises while on the other hand the Board does not, under the said provision, possess any authority to examine the legality or propriety of its own orders. In this view of the matter, the order of the learned CIR(A) is vacated and that of the DCIR is hereby cancelled.
40. ' Appeal of the taxpayer succeeds.