ORDER: (1). The titled appeal has been filed by Messrs Amtex Limited against Order-in-Appeal No, 322 of 2014 dated 7-5-2014 passed by the learned CIR(A), Faisalabad whereby he while maintaining the Order-in-Original No, 44/2013 dated 26-12-2013 passed by the learned ACIR, has upheld the demand raised against the appellant and dismissed the appeal.
2. Brief facts emanating from case record are that the appellant is an enlisted public limited company incorporated in Pakistan under the Companies Ordinance, 1984 and also registered under the Sales Tax Act, 1990 as manufacturer-cum-exporter engaged in making of zero-rated supplies of textiles and textile articles thereof. During post audit of the appellant's refund files pertaining to the periods from August, 2010 to February, 2013, it was observed that the appellant had purportedly received sales tax refund on strength of invoices issued by the blacklisted and suspended units. Resultantly, the appellant had been called upon with a show-cause notice dated 2-10-2013 under section 11(5) of the Act asking him as to why an amount of Rs, 6,781,133 may not be recovered under section 11(3) of the Act on account of illegal and unlawful input tax refund alongwith default surcharge under section 34 of the Act and a penalty under section 33 ibid.
3. In response thereto, written submissions alongwith supportive documents filed by the appellant could not convince the adjudicating authority and in result thereof, an order dated 26-12-2013 was passed against the appellant. The said order was challenged by way of appeal before the leaned CIR(A) who also dismissed the same without examining the legal and factual aspects of the controversies in their true perspective. Now, the appellant has come up before this Tribunal by arguing that impugned show-cause notice, adjudication order and first appellate order are based on false and baseless allegations made by the department and no evidence whatsoever has been placed on record to prove the allegations levelled against him as he procured the alleged goods under the coverage of proper sales tax invoices issued in terms of section 23 of the Sales Tax Act, 1990 duly incorporated in suppliers' sales registers and summary statements and his suppliers have duly discharged their sales tax liabilities under section 7 of the Act in their monthly sales tax returns for periods in question, hence, the instant set of transactions are not hit by clause (ca) of subsection (1) of section 8 ibid therefore, the appellant was legally entitled for refund of input tax under section 10 of the Act and too the alleged suppliers at the time of making transactions were operative/active and all the payments against those transactions were also made through banking channel as required under section 73 of the Act. Learned counsel for appellant, has also assailed that the First Information Report No, 16 dated 27-2-2013 lodged against M/s. Fine Pack on basis of which input tax refunded to appellant had been rejected and its recovery had been adjudged, is not existed having no legal force at present as Hon'ble Lahore High Court has quashed such FIRs without prior assessm ent. Learned counsel has contended that he is not arguing the case of the supplier; however, said judgment of the Court, has vital bearing on instant appeal as well because the First Information Report is lodged without any prior assessment of 'tax due'. Learned counsel further contented that the impugned show-cause notice and consequent adjudication order passed by the learned ACIR (PRA) are illegal and without Jurisdiction under Rule 36 of the Sales Tax Rules, 2006. On the other hand, in counter arguments, learned DR appearing on behalf of revenue-department has opposed the contentions of learned counsel for the appellant and supported the orders of authorities below for the reasons -recorded therein and reiterated almost the same arguments as advanced earlier at time of adjudication and fully supported the orders passed by both authorities below simply re-endorsing the basis, evolved therein.
4. The arguments of the learned representatives of both the rival parties have been heard, the orders of the authorities below as well as relevant provisions of Law and the case-laws cited by the learned AR of the taxpayer have also been perused, carefully.
5. Instinctly and instantly, legal issue of utmost importance is taken at the first because the condition of physical transfer of goods is nowhere expressly provided under the Sales Tax Act, 1990 or the rules made there under however, its inference has been found available in sub-clause (a) of clause (14) of section 2 of the Act and this is how, the detecting agency has created liability of sales tax on lack of physical transfer of goods or any documentary evidence in its respect by stretching the words "on the supply of goods received by that person" as given therein. The provisions of section 2(14) of the Act being a definition clause have no legal impact and effect on input tax adjustment/credit under section 7 vis-a-vis section 8 of the Act providing a mechanism for entitlement of input tax to a registered person even otherwise, these stretched and implied connotations was also omitted by the Finance Act, 2008 as assented on 26th June, 2008. As per sacred statute of book, the statute requires no proof of physical transfer of goods from supplier to buyer as a pre-condition for making an input tax adjustment or as the case may be refund. The new mechanism of sales tax value added laws as embodied in the Sales Tax Act, 1990 by its inception, abolished the primitive fiscal laws of the Excise and Inland Customs having physical inherent obstacles on easy transportation transfer, delivery and movement of goods by introducing fiscal and financial control of all such transactions. The detecting agency, stepping into its past, has not changed its behavior of physical control even after transitional requirement of receiving goods by that person was also omitted consciously from the Statue Book by the legislation on the rationale of free trade and fair business. It is a well-settled principle of law that a past and closed transaction cannot be reopened especially when a beneficiary has no role in the irregularity committed by the other party. The learned CIR(A) has erred in equating physical transfer of goods with that of entitlement of input tax adjustment, credit or refund thereon under section 2(14) of the Act and made the first one condition precedent for the second one without catering into provisions of section 2(44) of the Act wherein definition of 'time of supply' is given and according to its definition as envisaged under section 2(44) of the Act, a supply is deemed to have been taken place when 'goods are delivered' or 'made available to the recipient of supply' or 'when any payment is received in respect of that supply' whereas condition of physical transfer of goods only covers the first situation encompassing 'time of delivery of goods' and not caters the second proposition of 'time of making availability of goods to its recipient' and the third phenomenon 'time when any payment is received against that supply'. The contention of the learned DR is also found not justified in equating delivery of goods with adjustment of input tax, credit or refund thereof as this equation appears to be unfounded when a supply is made under 'hire purchase agreement' which by itself is excluded from the definition of time of supply, wherein no delivery of goods is made or physical transfer of goods is taken place at all however its ownership of use or property of rights is transferred to the buyer against certain money consideration paid for the same and tax point is created when money consideration is paid by the recipient user of the goods. Upon this departmental connotation, how the fate of input tax adjustment, credit or refund will be determined in case when any payment is received in advance against certain supply and its delivery is made at belated stage or in case of 'hire purchase agreement' where no physical delivery of goods is involved at all meaning thereby that physical transfer of goods cannot be made basis for input tax adjustment or as the case may be credit or refund on will and wishes of any tax official beyond statutory provisions of law as contained in the Sales Tax Act, 1990. That is how; the FBR in exercise of powers conferred under section 55 of the Act vide its clarification bearing C. No, 1(2)STM/2004/151922 dated 8th November 2013 has removed difficulties being faced by various quarters of business communities that documents and record of physical delivery/ transfer of goods like gate passes and transport receipts, etc. shall not be demanded by the subordinate tax functionaries during any proceedings against a registered person and cannot be made basis for disentitlement of his right of credit of input tax until and unless specially permitted by the Board. The issue of physical transfer of goods purportedly under section 2(14) of the Act has already been decided and dilated upon by this Appellate Tribunal in case of "The CIR (Zone-III), R.TO., Faisalabad v. 'Carnal Fabrics, Faisalabad reported as 2012 PTD (Trib.) 453.
6. No doubt that the instant case is wholly made out on third party basis by invoking provisions of section 8A of the Act, meaning thereby, over suspecting the input tax invoices of the suppliers of appellant. The provisions of section 8A of the Act simply require that the buyer should have the prior knowledge and reasonable grounds to suspect that the supplier will not eventually deposit the sales tax in the national exchequer paid by him. In order to attract the provisions of section 8A of the Act initial burden lies on the department to establish that the taxpayer had prior "knowledge" and "reasonable grounds" to suspect the supplier that sales tax paid to him shall be remained unpaid in its eventuality and then proceed against the taxpayer. The legislation has consciously made a registered person while receiving a taxable supply obligatory to have knowledge or to have any reasonable grounds to suspect at the time of making payment of sales tax to the supplier that in chain of supply certain tax will go unpaid'. In the instant case, the alleged suppliers were very much found operative at the time of transactions at e-portal of FBR showing hundred percent compliance level in their computer profiles. The appellant receiving taxable supplies was legally obliged to check, validity and veracity of the supplying persons i.e, "his suppliers" through electronic verification which was obviously done at the time of transactions however; there is no mechanism at all to check whether the persons on back chain of appellant's suppliers have also been running similar business reputation and fair play. It was the appellant's suppliers receiving supplies from their suppliers to check their status and to suspect that any of tax paid to them would go unpaid. Conversely, in this case, onus of responsibility and obligation resting upon the appellant's suppliers has intricately been shifted on the shoulders of the appellant which is clear violation of the provisions of section 8A of the Act. The department instead of taking any adverse action against those suppliers has initiated recovery proceedings against the appellant dragging him into undue tax liabilities therefore, in absence of all this, no recovery could be made and jumped over to appellant heaving Under the burden of undue tax liabilities.
7. The appellant in the instant case has transacted all payments to his suppliers through banking channel by complying with the mandatory provisions of section 73 of the Act which is the sole obligation on the buyer to ensure veracity of transactions in addition to verifying normal and operative status of his suppliers. Both, the necessary condition of verifying genuineness of suppliers from e-portal or FBR for its operative status and sufficient condition of making payments through banking channel to ascertain the varsity of such transactions was also complied with by appellant therefore, the legislature has consciously given a right to a buyer in such cases to reclaim input tax so paid, where registration of the supplier has been suspended or has been declared blacklisted, either as a refund or by way of adjustment. As per sacred statute of book, prime liability to pay sales tax is on the supplier under section 3(3)(a) of the Act and can be extended to the buyer only by a notification under section 3(A) ibid which provides shifting of tax liability to the person receiving the supply of specific goods and in appellant's case, no such notification was issued by the Federal Government as such defaulted amount has to be recovered from the defaulter instead of the buyer. It is a well settled law that no one would suffer for the act of another and no body could be punished for the wrong of others. This contention of D the appellant is very much supported by the judgment of ATIR, Lahore in case of "Messrs Zahidjee Textile Mills Ltd., Faisalabad v.
The Collector (Appeals), Faisalabad" reported as (2011 PTD (Trib.) 2619).
8. The vital fact in the instant case cannot be ignored that at the time of making transactions; alleged suppliers were enjoying their status as an "operative person" having normal behavior at e- portal of Federal Board of Revenue showing hundred percent compliance level at the time of transactions and upon their subsequent inclusion in the list of suspended and blacklisted units cannot be made effective retrospectively. A notification, executive order and instruction can be given retrospective effect if it goes to the benefit of the taxpayer but if it is detrimental or prejudicial to the interest of a taxpayer imposing liability or obligation will always operate prospectively. In our considered option, there is no provision in the Sales Tax Act, 1990 and the rules framed thereunder empowering the revenue authorities to recover the amount of tax refunded to a buyer due to subsequent suspension of registration and blacklisting of his supplier. In this regard, we gain strength from the landmark Judgments of Supreme Court of Pakistan ref: Messrs Army Welfare Sugar Mills Ltd., and others v. Federation of Pakistan and others" (PTCL 1993 CL. 188), "Messers Anoud Power Generation Limited and others v. Federation of Pakistan and others" (PTCL 2001 CL. 277) and "Government of Pakistan v. Messrs Village Development Organization" (2005 SCMR 492).
9. It is not of least importance to say that there is free competition in market where buyers and sellers are separate, unrelated and independent players, transacting with each other at arms- length. Once payment is made to '[buyer] through proper banking channel, as provided under the Act, buyer has no control over supplier. Buyer has no means to police supplier to ensure that payment made is also duly deposited in government exchequer. Supplier is not a puppet of buyer and does not dance to his tune. Any such expectation or obligation cast upon buyer in a Market where there is free and fair competition defies reasonability and logic. Under scheme of the Sales Tax ,Act, 1990, a taxpayer always enjoys 'proprietary interest' in deduction of input tax from output tax. Input tax is property of buyer which is paid to supplier so that the same can be deducted at time of supply of goods by the buyer. Any sub-constitutional limitation restricting a buyer from deducting input tax from output tax impinges on rights to property (input tax) guaranteed to a taxpayer under the Constitution (Articles 23 and 24) and must successfully filter through the test of Constitutionality.
10. We have also given special importance to recent judgment of Hon'ble High Court Lahore propounded in Writ Petition No, 5047/2012 in case of "Messrs Taj International (Pvt.) Ltd., and others v. The Federal Board of Revenue, and others "as relied upon by the learned counsel wherein Hon'ble Court has left hardly any space to further adjudicate upon the instant cases of recovery of sales tax made out on the basis of a document known as "The First Information Report" which were quashed after declaring it unconstitutional and violative of fundamental rights, there remains nothing to dilate further upon the instant case. In this judgment, Hon'ble High Court, Lahore has not only quashed the First Information Reports as being unconstitutional, violative of fundamental rights, ultra vires the Act but also declared effecting of recovery from the taxpayers on its basis is unconstitutional. No doubt that this is not the case of the supplier; however, said First Information Report has been lodged without any prior assessment of 'tax due' under section 11 of the Act and this act of criminalization is not prefaced with mandatory requirement of prior assessment of 'tax due' through civil adjudication as provided under section 11 of the Act therefore; we have no option but to hold that no recovery could be made from the appellant merely on the charge of FIR lodged against his supplier namely Messrs Fine Pack as in such like cases. First Information Reports have already been quashed, by Hon'ble Lahore High Court who declared it unconstitutional, violative of fundamental rights, ultra vires the Act and hence, stands illegal and unlawful. The judgment of the Hon'ble High Court as mentioned supra enunciating a principle of law is a judgment 'in-rem' and its benefit is extendable to the cases involving similar facts and circumstances, even though they may not be parties to the case before a competent court of law. The relevant extracts of the judgment is reproduced as under:-- "In the absence of tax assessm ent under section 11 of the Act and without knowing the "amount or loss of tax involved," neither compoundability is possible nor the award of sentence against the taxpayer. Hence, the process of hauling up taxpayers and effecting recovery of self-determined amount of sales tax by the officer of the Inland Revenue is brutally unconstitutional."
"We hold that the pre-trial steps including arrest and detention cannot be given effect to unless the tax liability of the taxpayers determined in accordance with section 11 of the Act. In this background criminal proceeding initiated against the petitioners, and documented as the First Information Report in this case and cases mentioned in Schedule-A is quashed as being unconstitutional, violative of fundamental rights, ultra vires the Act and hence illegal and without lawful authority.
For the above reasons all these petitions are allowed."
11. We must add here that it is the duty of the adjudicating and the first appellate authorities to weigh conflicting evidences and to draw their own inferences and conclusions in order to administer substantial justice but in the instant case, we have observed that both the learned adjudicating authority and the first appellate authority have turned a deaf ear to the assertions and grounds made by the appellant and have miserably failed to take notice of the departmental illegalities and they have not given findings on the issues separately rather in just one sentence in summary manners which rendered their whole exercise of adjudication illegal and ab initio void.
There is onerous duty on the part of adjudicating and appellate authorities to discuss all issues and dispose off what has been argued. The learned CIR(A) ought to have acted as an unbiased and impartial umpire, otherwise, it will be very hard for him to escape from the allegations of mala fide and maladministration and when any such illegal action will flow from a tax functionary in fiscal matters particularly, it will certainly be tainted with mala fide and mal-practice putting a speck on its function.
12. In view of what has been stated hereinabove, particularly in the light of law and keeping in mind the principles laid down by the superior courts in various pronouncements quoted supra, the impugned show-cause notice as well as consequent orders are declared to be illegal, ab initio and are hereby set aside.
13. The instant appeal filed by the taxpayer is accepted in the manners and to the extent as dilated supra.