CH. SHAHID IQBAL DHILLON, (JUDICIAL MEMBER).---This appeal preferred at the instance of the registered person/taxpayer is directed against the Order-in-Appeal No,13/2016 dated 25.03.2016 passed by the learned Commissioner Inland Revenue (Appeals-II), Lahore.
2. Briefly stated, the facts of the case are that during audit the officer concerned came to know that the appellant claimed inadmissible adjustment of input tax amounting to Rs,472,340/- for the tax period March 2009 to May, 2009 on account of invoices issued by black listed unit Messrs Rehmat Trading Corporation, thus contravened various provisions of the Sales Tax Act, 1990 read with Federal Excise Act,2005. Consequently the appellant was called upon to show cause as to why the said amount along with default surcharge along with penalties may not be recovered from him.
Since, no-one appeared on behalf of the appellant nor any reply was furnished Order-in-Original No,C/23/ 2015 dated 13.08.2015 was passed. Being aggrieved, the appellant preferred first appeal and the learned CIR(A) dismissed the same by upholding the treatment accorded by the Assessing Officer. Hence this appeal.
3. Learned A.R. Appearing on behalf of the registered person has reiterated the submissions as were submitted before the learned first appellant authority and as contained in the grounds of appeal. Firstly he contended that show cause notice in the instant case was issued on 29.05.2015 for adjudging the alleged tax fraud pertaining to the tax period 03/2009 to 05/2009 which was clearly time barred in terms of sections 36(1) and 11(5) of the Sales Tax Act, 1990. By referring subsection (5) of Section 11, it was submitted that "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 the sales tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard." The learned AR stressed that since the show cause notice was issued after the lapse of five years it was time barred and superstructure built on the basis of said show cause notice is of no lawful authority. Reliance in this regard was placed on the judgment of the Hon'able Supreme Court of Pakistan cited 1992 SCM R 1898 whereby it is held as under:-- "... Secondly, if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through courts. Thirdly, while construing a financial statute, its terms are strictly to be followed. Keeping in view these principles for short-levied duties on account of inadvertence, error or misconstruction Section 32(3) of the Customs Act, 1969 provides that the recovery notice shall be served 'within six months. If that is not done, like a suit for recovery of money after lapse of time prescribed by law of limitation, the recovery becomes unenforceable".
Reliance in this regard has also been placed on the case law reported as 2010 PTD 251 whereby following questions have been answered in negative by the Hon'able Karachi High Court:-- i. "Whether a show cause notice under section 11(2) of the Act, issued after 5 years and 10 months of the alleged non-filing of sales tax return is maintainable in law?
Whether a show cause notice under section 11(2) of the Act, issued beyond the maximum period of five (5) years prescribed under section 36(1) of the Act, is maintainable in law?"
4. It was also4contended that the Order-in-Original was passed on the date which was not fixed for hearing, therefore, it was not sustainable on this score as well. To substantiate this contention it was contended that the last date for hearing was 22.06.2015 but the order was passed on 11.08.2015.
Thus it was not maintainable as per ratio settled by the Tribunal in ITA No,936/LB/2005 dated 23.02.2007. In this case it was held as under:-- 'Reverting to the facts of the case, evidently ex-parte assessment in the instant case has been made by the Assessing Officer on a date for which the case was not fixed for hearing. If the Assessing Officer has not recorded ex-parte proceedings on the defaulted date and proceeds to make his own judgment by resort to Section 62 of the Income Tax Ordinance, 1979, on the subsequent date which is not permissible under the law. There is nothing to show that this case was actually taken up for ex-parte proceedings on 17.3.2003 the date specified in the statutory notices for appearance. Rather the assessee's absence was market by the Assessing Officer on this date as is manifest from the order sheet. Thus merely making absence of the assessee in the order sheet, without observing to pass ex-parte assessment or order, it cannot be possibly held that the Assessing Officer had made up his mind to proceed ex-parte on the defaulted date. In such eventuality it was necessary for the Assessing Officer to have issued a fresh notice for 18.3.2003 or should have adjourned the case".
5. The learned AR has further contended that section 2(37) of the Act has wrongly been invoked in the instant case as the mandatory provision of prior knowledge has not been established against the appellant and the authorities below have merely believed in concocted story as all requirements were fulfilled under section 7 read with Section 23 of the Sales Tax Act, 1990 along with information available on the website for claiming input tax adjustment under the mechanism of value added tax regime. He vehemently contended that depositing of tax under section 3(3) was entire liability on the shoulders of suppliers who are or were duly registered and filing monthly returns and summaries with sales tax department. He added that in light of the judgments reported as 2004 PTD 1893, 1999 PTD 4126, 2002 PTD 2440 and 2000 PTD 399 etc. The buyer cannot be held liable for the default, if any, on part of the supplier and it was duty of sales tax department to check whether the suppliers are depositing sales tax in the government exchequer. He has contended that invocation of Sections 33 and 34 of the Act is also against the norms of justice. He further stated that all supplies were received after complying with the provisions of the Act during 03/2009 to 05/42009. He referred to the judgments passed in STR No,98/2014, W.P. No,17185/2013 wherein it has been held that the status of supplier is to be considered at the time of supplies and not the status attained subsequent to supplies.
6. Learned A.R also submitted that exactly in similar circumstances, the Honourable Lahore High Court in its recent judgment reported as 2016 PTD 467 has confirmed the view of the ATIR and resolved the case in favour of the registered person. The relevant para of this judgment reads as under:-- "In the present case, as it is not disputed that when the transaction was made, the suppliers were active and duly registered and further admittedly the invoices in question had no direct nexus with the subsequent blacklisting and suspension of the supplier, therefore, the law laid down in aforesaid judgment is on all four to the facts and circumstances of this case and refund could not be denied to the respondent assessee merely for the reasons that supplier became blacklisted and suspended subsequently. The order passed by the learned Tribunal is well reasoned and grounded in correct principle of law relevant to the facts of the case".
7. On the other hand, the learned D.R. Supported the orders of the authorities below and has stated that the orders passed by both the authorities below are based on report of Federal Board of Revenue which is authentic evidence for involvement of the registered person in fake invoices for claiming input tax. He, therefore, prays for maintenance of the orders of the authorities below.
8. We have given due consideration to the rival arguments and also gone through the relevant record available on file. Perusal of the impugned order reveals that the show cause notice in the instant case was issued on 29.05.2015, therefore, the sales tax demand raised for the tax period 03/2009 to 05/2009 is hopelessly barred by time and not sustainable keeping in view case laws cited supra. Further section 11(5) provides that "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". Since the show cause notice in the instant case issued after the lapse of five years time limit, the Order-in-Original passed on the basis of said show cause notice is barred by time and not sustainable, in view of the foregoing discussion and in light of the ratio settled in the aforementioned judgments, we are of the opinion that the orders passed by the authorities below are not sustainable. Accordingly, appeal of the registered person is accepted in the above said manner and the orders of the authorities below are vacated.