' NAZIR AHMAD, (JUDICIAL MEMBER).---Through the titled sales tax appeal, Order-in-Original No,111/2014, dated 25.02.2014 recorded by CIR (Appeals) RTO, Faisalabad, has been assailed by the registered person.
2. The facts in brief leading to the instant appeal are that as per report of audit team of Post Refund Audit, the registered person had received refund amounting to Rs,11,089,223/- for the tax periods July 2010 to October, 2010, December, 2010, January, 2011 to December, 2011, January, 2012, February, 2012, May, 2012, June, 2012, September, 2012 against the invoices issued by blacklisted/suspended units. Based on the said omission/irregularities, adjudication proceedings were initiated by the taxation officer by way of issuance of show cause notice dated 02.10.2013, which explanation tendered by the registered person was treated unsatisfactory. Resultantly, adjudication proceedings culminated in passing of 0-N-0 bearing No,6812012 dated 04.12.2013 wherein it was held as under:--- "It is held that receipt of sales tax refund of Rs,11,089,223 against invoices of suspended/blacklisted units is not admissible and the same is recoverable under section 11(3) along with default surcharge under section 34 of the Sales tax Act, 1990 (default surcharge to be calculated at the time of payment). Penalty equal to the principal amount is also imposed under section 33(11) of the Sales Tax Act; 1990." --- Feeling aggrieved, the registered person preferred appeal before CIR (Appeals) RTO, Faisalabad, who also upheld the ONO. Still discontented, .The registered person has come up in further appeal before this Tribunal.
3. Learned counsel appearing on behalf of the registered person has termed the action of both authorities below to be arbitrary and contrary to facts of the case. He has elaborated his view point by maintaining that recovery of sales tax for the period prior to July, 2012 is adjudged under section 11(3) of the Act instead of section 36. Since section 11(3) has been inserted to the Act by virtue of the Finance Act, 2012 and these newel provisions are not made applicable retrospectively and no saving clause for protection of provisions of section 36 is also found given therein therefore; recovery of sales tax short levied, not levied or amount erroneously refunded can't be made adjudged under section 11(3) and provisions of section 36(1) or as the case may be, section 36(2) of the Act will come into play in all such old cases of recovery prior to July-2012. Reliance is placed on judgment of ATIR, Lahore in case of Messrs Asghar Surgical Works, Chaska v. The CIR (Appeals)
Gujranwala and others in S.T.A. No, 1203/LB/2013 dated 01-07-2014. He further submits that charges leveled in the show cause notice are unjust and baseless because appellant procured alleged goods under coverage of proper sales tax invoices issued under section 23 of the Act as duly incorporated in his sales register, summary statement and due tax is also paid in monthly sales tax return for period in question therefore, appellant has rightly received refund of input tax incurred in connection with zero-rated supplies under section 10 of the Act. He adds that alleged purchases pertain to the period when his suppliers were not included in the list of blacklisted units and their subsequent blacklisting cannot be operated retrospectively. In this regard, reliance is placed on landmark judgment of August Supreme Court of Pakistan in a case of "Government of Pakistan v.
Messrs Village Development Organization" as reported at 2005 SCMR 492 wherein it has been laid down; "It is well settled principle of law that the executive orders or notifications, which confer right and are beneficial, would be given retrospective effect and those which adversely effect or invade upon vested right cannot be applied with retrospective effect". As far as allegation of non physical transfer of goods is concerned, he contends that such condition is nowhere exptessed provided in the Act or the rules made there under however, an inference of its was available in sub-clause (a) of clause (14) of section 2 of the Act by stretching the words "on the supply of goods received by that person" and said clause being a definition clause having no legal impact on input tax adjustment/credit under section 7 vis-a-vis section 8 of the Act providing mechanism for entitlement of input tax to a registered person yet this stretched and implied expression was also omitted by the Finance Act, 2008 as assented on 26th June, 2008. Reliance is placed on a case reported as 2012 PTD (Trib.) 453. Even otherwise, he explains that demand of sales tax against appellant would amount to double taxation which is not permissible under law because liability to pay sales tax is on the supplier under section 3 of the Act. In any case, appellant has already discharged his sales tax liability by making bank payments to alleged suppliers therefore; demanding the same amount from appellant due to any default whatsoever on the part of his suppliers is clear example of double taxation which is unlawful, illegal and uncalled for. It is also the contention of learned counsel that the legislation has consciously required a registered person while receiving taxable supply under -section 8A of the Act to have "knowledge" and "reasonable grounds" to suspect that the supplier will not eventually deposit sales tax paid by him in national exchequer and in order to attract its provisions, initial burden lies on department to establish that taxpayer had prior knowledge and reasonable grounds to suspect the supplier that sales tax paid to him shall remain unpaid in its eventuality and the to proceed against a taxpayer. Reliance is again placed on judgment of Hon'ble Lahore High Court, Lahore in case of "Messrs D. G. Khan Cement Company Ltd. v. The Federation of Pakistan, etc." reported at PLD 2013 Lah. 693. On the strength of foregoing assertions, he seeks vacation of the orders passed by both authorities below.
4. On the other hand, when learned departmental representative is confronted with the situation cited supra, she has fully supported orders passed by authorities below simply reiterating the basis evolved therein.
5. We have carefully considered arguments of rival parties and have also gone through relevant case record available on file. We find ourselves in agreement with the line of arguments adopted by learned counsel being supported by plausible reasons as well as dictum of law. We are also of the considered opinion that 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 way of a notification under section 3(A) ibid. If due tax has not been deposited by the supplier, input tax of the buyer adjusted on strength of their invoices can't be disallowed under section 8(1) (ca) of the Act as it axes an innocent person for wrongs of the other. This case remains nowhere as it is broadly built up on section 8(1) (ca) of the Act Whose provisions, being unconstitutional and illegal, have already been struck down by Lahore High Court, Lahore. Furthermore, provisions of section 8(1 )(d) of the Act can only be invoked in cases where "collusion" or "tax fraud" is established by department. In this case, neither any charge of 'tax fraud' to evade sales tax with the connivance of suppliers by way of fake invoices is leveled in impugned show cause notice nor department could bring on record any evidence for by which it can be inferred that alleged invoices were fake and false nor could prove mens rea of tax fraud particularly in this case where payments in respect of all transactions has been made through bank without which input tax can't be disallowed under section 8(1) (d) of the Act. That is how, a registered person is made obligatory under section 8A of the Act to have prior knowledge or reasonable grounds to suspect the supplier at time of making payment that certain sales tax will go unpaid in chain of supply and in order to attract its provisions, initial burden lies on department to establish that taxpayer had prior knowledge and reasonable grounds on the basis of past track record of supplier to suspect that sales tax paid to him shall remain unpaid in its eventuality and then to proceed against a taxpayer. There is no doubt in it that at the time of purchase transactions: none of his suppliers was blacklisted or suspended and their subsequent inclusion in that very list cannot be made operated retrospectively. The whole proceedings in this case are infested with inherent legal infirmities and improprieties, therefore; liable to be set aide in view of quoted judgment of Hon'ble Lahore High Court, Lahore in case of Messrs D. G. Khan Cement Company Ltd. V. The Federation of Pakistan and others reported at PLD 2013 Lah. 693. In view of the foregoing discussion, we are left with no other alternative but to vacate the orders passed by both authorities below being devoid of legal substance therein by way of acceptance of appeal of the registered person in terms of prayer. We order accordingly.