MUHAMMAD JAWED ZAKARIA (JUDICIAL MEMBER).---This appeal arises out of the order of the Commissioner Inland Revenue passed by him vide Order-in-Appeal No, CIR/A-II/98 dated 28.02.2013 on the following grounds:--
1. That the learned Commissioner Inland Revenue (Appeal-II) was not justified in annulling the order passed by the Officer Inland Revenue under section 11(2) of the Sales Tax Act, 1990.
2. That the order of the learned Commissioner Inland Revenue (Appeals) was not justified to hold that supplier was not blocked at the time of supply and did not appreciate issuance of the fake invoices in the light of Section 8(1)(d).
3. The learned Commissioner Inland Revenue (Appeals) was not justified by not appreciating the ultra vires of Section 8A of S.T.A. 1990 while giving judgment that the registered person was held responsible under joint responsibility.
2. Brief facts of the case that the audit of Messrs Pearl Packages (Pvt.) Ltd., Karachi bearing Sales Tax registration number 844205619 for the period from 7/2010-06/2011, was initiated under section 25 of the Sales Tax Act, 1990. Statutory notice under 25 of the Sales Tax Act, 1990 were issued. Audit of the unit has been conducted on the basis of the available record. Following discrepancies have been forwarded to the registered person vide show cause No, 109 dated 17.05.2012. Show cause is produced as under:-- "01. Whereas, it has been reported to the undersigned, that during the course of audit of sales tax record for the period from July 2010 to June 2011, it is been transpired that you M/s. Pearl Packages (Pvt.) Ltd., bearing STR No, 1750844205619 have adjusted input tax on the invoices of below mentioned suppliers. The said registered persons are blocked as per FBR's web-side list as on 17.05.2012 you Messrs Pearl Packages (Pvt.) Ltd., claimed illegal input tax adjustment on the strength of fake tax invoices, purported to be issued by the below mentioned suppliers. Due to adjustment of inadmissible input tax, sales tax amounting to Rs, 610,832/- has not been correctly realized and deposited in Govt. Ex-chequer. Detail of your purchase is as under.
Sr No.Sales Tax registration NumberName of the Unit Tax PeriodSales Tax Amount (Rs)
01 1700480001537 M/s. M Y Enterprises 07/2010 73,590 02 1750844201573 M/s. OMEGACOM 08/2010 67,244 03 1700480001537 MIS. MY ENTERPRISES 10/2010 7,295 04 1712847102164 M/S. Yousif International11/2010 88,279 05 1703481900191 M/s. R.S Enterprises 11/2010 86,122 06 1700480001537 M/s. M Y Enterprises 12/2010 12,210 07 1712847102164 M/s. Yousaf International12/2010 82,313 08 1703481900191 M/s. R.S Enterprises 12/2010 77,530 09 1200181011964 M/s. Z.I. Enterprises 01/2011 94,453 10 1703481900191 M/s. R.S Enterprises 05/2011 21,796 Total 610,830 Thus registered person has violated the provisions of Sections 3, 7, 8(1), (ca), (d), 11(2) of Sales Tax Act, 1990. Therefore, amount of Sales Tax Rs, 610,832/- is recoverable under section 36(1) of Sales Tax Act, 1990 along with default surcharge and penalty under sections 34 and 33 of Sales Tax Act, 1990, (to be calculated at the time of payment).
2. You Messrs Pearl Packages (Pvt.) Ltd. Has not paid sales tax due as per section 8B(1), under S.R.O.
647(1)/2007 of the Sales Tax Act, 1990. Being a manufacturer, you can only adjust 90% of output tax and 10% of output tax is payable.
Output Tax during 2010-201110% as section 8B(1) under S.R.O.
647(1)/2007Sales Tax Paid in the Sales Tax returnBalance Payable Rs.2,464,398 Rs.246,439 Rs.27,546 Rs.218,893 Therefore, you have violated section 8B(1), under S.R.O. 647(1)/2007 of the Sales Tax Act, 1990 Sales Tax amounting to Rs,218,893 is recoverable under section 36(1) of Sales Tax Act, 1990 along with default surcharge and penalty under sections 34 and 33 of the Sales Tax Act, 1990 (to be calculated at the time of payment)."
3. On the date of hearing, Mr. Abdul Hafeez. Nizamani, learned DR appeared on behalf of the Appellant/Department as D.R. While the Miss Memona, learned Advocate appeared on behalf of the Taxpayer/Respondent.
4. Initially Learned DR submitted that learned Commissioner Inland Revenue (Appeal-II) was not justified in annulling the order passed by the Officer Inland Revenue under section 11(2) of the Sales Tax Act, 1990. That the order of the learned Commissioner Inland Revenue (Appeals) was not justified to hold that supplier was not blocked at the time of supply and did not appreciate issuance of the fake invoices in the light of Section 8(1)(d). The learned DR further argued that the learned Commissioner Inland Revenue (Appeals) was not justified by not appreciating the ultra vires of Section 8A of STA 1990 while giving judgment that the registered person was held responsible under joint responsibility.
5. On the other hand, Miss Memona, learned counsel for the respondent has vehemently argued that the entire Show Cause Notice is based on false allegation. The Show Cause Notice was contradictory in nature and was, therefore, the appeal of the respondent was allowed and the contentions raised were accepted by the CIR(A). It is urged by her that Show Cause Notice itself states that the purchases were made on a certain date/period when the Companies/suppliers were activities and the entire case of the department is thus proved to be baseless and devoid of truth. She vociferously argued at length that the record will show that purchases were made when the suppliers were not blocked and even after such a hue and cry raised by the department the profile of some of the suppliers still show that they are active and not blocked as is being alleged. It is submitted that blockade of supplier by no stretch of law can be used against the manufacturer or purchaser as the department and/or FBR does not make it public through any Public Notice that so and so suppliers have been blocked. Miss Memona, learned advocate for the respondent went on to state that since a non issue has been raised and made by the department as an issue. She ably traced out the record to find out that invoices which were for the period involved in appeal in hands when the suppliers were not blocked. However two invoices/ parties have been traced which are being filed as a proof in support of her submissions. The Profile of two suppliers available at the moment will show that they are still active and the allegations are therefore baseless and devoid of truth. She tenaciously supported the documents and invoices showing the particulars of the Suppliers as well as the amount paid. Which will show that the amount has been duly deposited and the allegations contained in Show Cause Notice are concocted and false. She respectfully urged that to put the record straight invoice. No, 1700480001537 is for Rs, 25520/- and not Rs, 12210/- as alleged in the Show Cause Notice. Last but not the least, she prayed that thus Hon'ble Tribunal be graciously pleased to 'observe that Blocking date is 17-5-2012 and the invoices pertains to the period prior to the date of Blocking as the last invoice mentioned in Show Cause Notice pertains to the period May, 2011. As the purchases were done a year before the supplier was blocked. It is that a misleading Show Cause Notice was got issued by misdirecting and misstated the true facts, the learned Assistant Commissioner had passed an order now being impugned by the department. It is that the allegations contained in the Show Cause Notice as baseless, devoid of facts and have been levied with mala fide intentions.
6. Both the parties have been heard and case record has been perused the relevant extract from the order of the Learned CIR(A) is reproduced here under:- 'Further, if it is presumed that the notice dated 09.06.2012 was properly issued and served on the appellant even then the Officer Inland Revenue has acted illegally without adhering to be Board's Circular No, 7(2) DT- 14/94 dated 01.02.1994 wherein direction were issued to allow at least three opportunities with 15 clear days for compliance. Non adherence to be same cannot be endorsed being against the principle of natural justice. This itself leads to the conclusion that adequate opportunity of being heard was not provided and the appellant has been condemned unheard.
' Therefore, I am convinced that the Department acted in haste and illegally passed the impugned order-in-original without providing proper and reasonable opportunity of hearing to the appellant.
On this ground alone the order-in-original is not sustainable in the eye of law in view of the judgments of the Superior Appellate fora reported as 1984 PTD 150, 2006 PTD 2654 (H. C. Lah) and 2007 PTD 2583 (Trib.) wherein it has been held that no adverse inference can be drawn against any one on the basis of any information without confronting the aggrieved person on the evidence and information on the basis of which adverse inference is drawn. The Hon'ble Sindh High Court in the case of Karachi Textile Dyeing and Printing Works, Karachi v. Commissioner of Income Tax (Central)
Karachi reported as 1984 PTD 150 has ruled as under:- "No party can be condemned on basis of evidence or information adduced behind his back and without any notice to him. It is true that technicalities of Evidence Act cannot fetter the exercise of power of the Assessing Authority but rule of justice demands that before any adverse order, penalty or liability is passed or imposed upon a party he should be afforded full opportunity to meet the case and rebut the evidence used against him. "
' Owing to the above, it would not be out of place of mention here the important aspect of the case, which cannot be over looked, is that before taking adverse inference the Officer Inland Revenue was under legal obligation first to have exhausted all modes of services as mentioned in Section 56 of the Sales Tax Act, 1990.
' The undersigned is inclined to agree with the submission of the appellant's AR that the Officer Inland Revenue was not justified to hold that the appellant's suppliers were blocked on 17.05.2012 without first ascertaining the fact that these units were blacklisted or otherwise and the invoices issued by them were related prior to the date of blocking and an amount Rs,829,725/- recoverable along with default surcharge and levy of penalty thereon under sections 33 and 34 of the Sales Tax Act, 1990, for the simple reason that the appellant's supplier in intact and is active taxpayer as per verification on FBR's e-portal. In the circumstances, the Officer Inland Revenue, before taking any adverse inference was under legal obligation to call for the information from the supplier on this issue. Since the Officer Inland Revenue failed to fulfill the legal requirement, the action of recovery of Sales Tax amounting to Rs,829,725/- along with default surcharge any levy of penalty thereon is unjustified. Particularly, the appellant's supplier as listed in the impugned order is active till date. In this way the Officer Inland Revenue has not taken full efforts to make a case for the department.
In view of the aforesaid legal and factual position, the impugned Order-in-Original No, 08 of 2012 dated 25.06.2012 is not sustainable in the eye of law and is hereby ANNULLED.
7. From perusal of the above findings of the learned CIR(A) it is evident that learned CIR(A) has discussed the issue aptly. Further the provisions of Section 8A simply requires that the buyer should have the "knowledge" and "reasonable grounds" to suspect that the supplier will not eventually deposit the sales tax in the national exchequer paid by him and 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 respondent, in the present case, under the prescribed mechanism of value added tax (VAT), has made payment of input tax to his supplier and he had no access to confirm that the alleged supplier had made the payment in the Government treasury or not. The respondent 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 transactions. This was the duty of the tax functionaries to check as to whether the supplier had made payment 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 respondent was in knowledge or had reasonable grounds to suspect that some or all of the tax payable in respect of supply or any pervious of subsequent supply of the goods supplied 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 register 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 present case is very much different because the respondent, after verifying the status and genuineness of the supplier from e-portal of FBR made the payments of input tax to them and fulfilled all the legal responsibilities on his part and after adopting of method of making payments as it prescribed by the law, has discharged its onus so no responsibilities lay on respondent's shoulders to haunt his supplier depositing their liabilities in the Government exchequer or not. Mere allegation that the alleged suppliers are blacklisted, suspended and fake is not enough and corroborating evidence for denying the lawful right of input tax of the buyer. Therefore, the respondent cannot be evolved as a joint liable and induction of contravention does not qualify. Reliance is placed on the judgment of the Hon'ble Lahore High Court in 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 as under:-- "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 established that the taxpayer had "knowledge" and the proceed against the taxpayer. The impugned show-cause notice does not, however, Section 8-A is different from Section 8 (1) (ca) and is triggered by the requirements of "Knowledge" of the past practice of the supplier".
8. Further Moreover, status of those suppliers was also checked by the respondent and verified from the website of the FBR (www.Fbr.Gov.Pk) and it was reported by it to be active. Further, all the payments were made by the appellant, after adhering to the provisions of section 73 of the Act, Besides the suppliers were also submitting copies of their monthly Sales Tax Returns and the summaries of the relevant period of the Department. It was also added by the learned counsel, that the respondent did all the possible precautions and endeavors as well as used, all the official resources to verify status and genuine-ness of the suppliers. Such acts clearly speak for themselves that the respondent discharged all his legal and the ethical responsibilities to bring the truth at the door in a good faith. Further all the requisite conditions as are laid down in sections 7 and 73 of the Act for claiming in put tax and paid the tax to the suppliers were fulfilled bona fide, We may observe that the learned DR has failed to produce any order regarding the blacklisting, suppliers, at the particular point of time, of issuing invoices to the respondent, whereas the persons registered under Sales Tax Act can only be declared as blacklisted through an order passed under clause (N) of para 3 of Sales Tax General Order No, 1 of 2004 read with Rule Chapter I of Sales Tax Rules, 2006 and section 21 of the Sales Tax Act, 1990. As it was stance of the registered person that there is no order of relevant period of blacklisting of the supplier units mentioned in the detail provided by the department, therefore, non- production of such order by the Revenue leads to the presumption that the stance of registered person is correct and had there been any order of blacklisting of the units mentioned in the show cause notice, the Revenue should have produced that before this Tribunal. Although there is no order to show that the suppliers were blacklisted yet that order through which the suppliers were alleged to be blacklisted should have been an executive order it is settled law that the, orders or notifications which confer rights and are beneficial would be given retrospective effect and those which adversely affected or invaded upon the vested right could not be applied with retrospective effect. This view is fortified by the judgment of Hon'ble Supreme Court of Pakistan in re: "Government of Pakistan v. Messrs Village Development Organization" cited as 2005 SCM R 492. On the same point Hon'ble Lahore High Court in the case of Messrs Brother Engineering (Pvt.) Ltd." cited as 2004 PTD 2928 has held that:-- "It is well-settled that a notification or an executive order adversely affecting the right of any person cannot operate retrospectively but if the same confers any benefit it can be made applicable retrospectively".
9. Now it is well-settled that subsequent blacklisting of supplier could not be made a tool to deprive the registered person of a valuable right accrued in his favour for purchases or transactions made prior to the suspension of registration of such supplier. Having taking regard to the facts of the case in its entirely and after respectfully following the ratio settled in the referred judgments cited supra, we have no option except to reach the conclusion that Revenue has failed to prove the allegation leveled against respondent that they claimed inadmissible input tax adjustment on the basis of invoices issued by their suppliers which were blacklisted subsequent to the transactions made by the respondent. In this view of the matter the order of the learned CIR(A) is maintained.
10. Before parting with this judgment, I may observe that taxpayers cannot be presumed to be dishonest, in case of [Pannela Binjraj and others v. Union of India and others AIR 1957 SC 397], the Supreme Court has held emphatically that there is no presumption against the bona fide or the honestly of the assessee and normally the Income Tax Authorities would not be justified in refusing to an assessee a reasonable opportunity of representing his views before deciding any matter against him. The Bombay High Court in [Hirabai D. Desai & Sons v. CIT (1936) 4 ITR 95 (Born.) has also held that there is no presumption of bad faith against any assessee permissible in law unless there be sufficient material on record to establish and ascertain the bad faith in relation to the that particular taxpayer nor can the Department presume the goods to have been sold at black market prices which are higher than control rates as was held in. [A.S. Siven Pillal v. CIT (1958) ITR 328 (Mad.)] Pure guess or bare suspicion or stock phrases is not sustainable while framing assessment against the assessee. [Dharajlal Girdharilal v. CIT (1954) 26 ITR 736 (SC) [ITA No,1003 of 1957,58 decided on 09.12.1959 (1960) 2-Tax (V-277). There must be something more than bare suspicion.
[Dhakeswa ri Cotton Mills Ltd. v. CIT (1954) 26 ITR 755 (SC)].
In finale, I would add that one should always remember that truth even if buried has power and a community can never be fed on lies all the time. Some day it will come alive with fury: "When truth is buried underground it grows, it chokes, it gathers such an explosive force that on the day it bursts out, it blows up everything with it." (Emlie Zola)
11. Consequently, the departmental appeal is hereby dismissed.