' JAWAID MASOOD TAHIR BHATTI, CHAIRMAN.---The titled appeal has been filed at the instance of the- appellant/registered person against Order-in-Appeal No, 488 of 2014 dated 18-6-2014 passed by the learned CIR(A), Faisalabad whereby he while maintaining the Order-in-Original No, 31/2013 dated 25-11-2013 passed by the learned ACIR, has upheld the demand raised against the appellant and dismissed the appeal.
2. Succinct facts leading to the instant case are that the appellant is registered as a manufacturer of plastic products making taxable supplies under the Sales Tax Act, 1990 and accordingly sales tax paid on its input goods is adjusted and credited under law. As per STARR data, the registered person has claimed/adjusted fake input tax during the periods from July-2008 to March-2012 and resultantly, a show cause notice dated 21-08-2013 was issued as to why inadmissible input tax may not be rejected and declared output tax may not be recovered from the appellant under section 11(3) of the Sales Tax Act, 1990 along with default surcharge and penalty under sections 34 and 33 of the Act. Upon adjudication proceedings, appellant was proceeded in absentia without providing him with any opportunity of hearing and case was decided on his back. The registered person being aggrieved by the said order filed the first appeal before the learned CIR (Appeals) who also rejected the same and now the appellant feeling dissatisfied and aggrieved with the treatment accorded by both the lower fora, has come up in this second appeal before this Tribunal, praying for setting aside the orders of the authorities below.
3. We have heard the arguments advanced by both the rival parties and also carefully gone through the relevant law and record available on the file as well as case laws referred before us on behalf of the taxpayer.
4. The impugned show-cause notice and consequent adjudication order pertaining to the periods from July-2008 to March-2012 for recovery of sales tax purportedly adjusted illegally has been issued under section 11(3) of the Act which are illegal and without jurisdiction because at that juncture of time, in case of any inadmissible and illegal input tax adjustment, the provisions of section 36 of the Act were applicable for its recovery and by virtue of Finance Act, 2012, provisions of section 36 were deleted and a new section 11(3) was inserted to the Sales Tax Act, 1990 in such cases, where any recovery of inadmissible and illegal adjustment was requisitioned. By deletion of section 36 and insertion of section 11(3) to Sales Tax Act, 1990 having no retrospective application and without any saving clause for protection of recovery cases under. Section 36 for the periods prior to this insertion has been given thereunder, hence, whole exercise carried out under section 11(3) of the Act is illegal, unlawful and without jurisdiction. Despite deletion of section 36 from the Statute Book, We have found its existence in section 25(3) for audit purposes and in section 45B for appeal before the Commissioner Inland Revenue in all such old recovery cases as pertained to the periods before its deletion. No saving clause for cases of section 36 particularly the cases falling under section 36(2) of the Act has been provided in section 11(3) of the Act, therefore, in all old cases, recovery of sales tax has to be adjudged under section 36(1) or as the case may be, under section 36(2) ibid. The provisions of section 11(3) are not deemed to be curative, remedial and beneficial in nature as it curtails right of a registered person not to be called upon to show cause notice after expiry of time limitation under section 36(2) of the Act by impeding him with tax liabilities beyond three years in case of inadvertence, error and misconstruction as well, hence, provisions of section 11(3) of the Act cannot be made applicable retrospectively on this general principle of law. It is well settled principle of law that in absence of clear intention of the legislature to apply a provision of statute with retrospective effect it would always be deemed that' it would be applicable prospectively. This principle has been highlighted by the Apex Court of Pakistan in case of "The Federation of Pakistan and others v. Haji Muhammad Sadiq and others" reported as 2007 CLD 1 = 2007 PTD 67. As such, learned adjudicating authority has erred by invoking provisions of section 11(3) of the Act for recovery of sales tax for the periods prior to its insertion in all cases squarely falling under section 36(1) or as the case may be under section 36(2) of the Act. Therefore, whole proceedings culminated under section 11(3) of the Act are declared to be illegal, ab initio void and nullity in the eyes of law. It is well-settled that any right or vested interest accrued to a party under a law cannot be snatched away or curtailed by any subsequent addition and deletion in law. A right of law existing on a day on which a omission or commission was made is a vested right and this right is governed by the law prevailing on that day and not by the law prevailing on the date of its decision and this vested right can be taken away only by a subsequent amendment if it so provides expressly or by necessary intendment. It is a wholesome principle of law that a case is to be decided in accordance with the law prevalent at that moment of time when an omission or commission was made.
5. The sales tax liability was created against the appellant (hereinafter "the buyer") mainly on the ground that the purchases were made from the suppliers who are not traceable and genuine. After going through the case record, we have found that the learned adjudicating and the first appellate authorities have wrongly placed and shifted the burden on the appellant to establish genuineness and veracity of transactions made with his suppliers particularly in the circumstances when the initial burden has already been discharged by the appellant by producing sales tax invoices duly issued under section 23 of the Act and registration certificate of his suppliers issued under section 14 of the Act. Moreso, when the department has not been able to confirm that the person to whom registration certificate issued did not exist at the time of issuing registration certificate or at the time of purchases made by the appellant. The order blacklisting the suppliers was belated issued much after transaction of purchases and therefore, on the basis of these orders, the department cannot state that the purchases of the appellant were not genuine at the time of suspension/blacklisting and the time of transaction is not same but different. The knowledge gained by the department upon suspension/blacklisting of the suppliers was not available with the buyer at the time of transactions to have reason to believe that the suppliers will go into default subsequently. Had the department nipped the evil in the bud by not granting the suppliers with the sacred registration certificate if he had some reason to believe that the suppliers will commit any tax fraud subsequently or if the same was allotted in good faith then vigilance should have been catered from very inception by apprehending practice of any tax fraud. Even before or after blacklisting the suppliers, it seems that no enquiry has been made by the department instead it adopted a very convenient way of raising a huge liability against the appellant as it is always the buyer from whom coins can be jeopardized in ease. If such an enquiry would have been made and facts would have been brought on record that the suppliers did not exist at the time of supplies to the appellant then the action of department recovering amount of input tax refund from the appellant could have been justified. The duty to issue registration certificate after due verification of antecedents and particulars of the suppliers was very much lied on the department and if he has not taken care to issue registration certificate after due satisfaction and has gone on issuing certificate to bogus, fake and nonexistent parties, the responsibility entirely lies upon the department. It is now well-settled principle of law that a party should not be made to suffer on account of act/omission on the part of the court or other state functionaries. There is no justifiable material on record on the basis of which any contrary conclusion could be drawn. We are therefore of the firm opinion that it is the department who should have been required to trace out the suppliers and asked for recovery of sales tax evaded, and the burden in this case is throughout on the tax officials of inland revenue as they had issued the registration certificate and the adverse action of department to impose sales tax against the appellant is not only illegal and unlawful but also harsh and highly unjustified. If one needed, reference can be made to the judgments of the Hon'ble Sindh High Court, Karachi in case of "Messrs Silver. Cotton Mills Ltd. v. Commissioner of Sales Tax (West), Karachi" reported as (1984 PTD 216) and "Messrs Jupiter Textile Mills Ltd. v.
Commissioner of Sales Tax (Central), Karachi" reported as 1984 PTD 133 and "The Commissioner of Sales Tax v. Messrs Sultan Textile Mills Ltd." reported as (1973 PTD 216).
6. As far as, plea of the learned DR that two suppliers of the appellant have not filed sales tax returns under section 26 of the Act for the periods in question, suffice it to say that the provisions of section 7(1) of the Act are very clear in its tone and tanner that a registered person shall be entitled to deduct input tax 'paid or payable' during the tax period for the purpose of taxable supplies 'made or to be made' by him from the output tax that is due from him in respect of that tax period.
Entitlement of input tax adjustment, credit or its refund is all the time available to the buyer person in both the situations whether the supplier has paid this very tax or it is yet payable by him. In case, tax stands payable by the supplier, the legislation has consciously extended its adjustment to the buyer might be to provide safeguard to sales tax scheme build on edifice of input tax vis-a-vis output tax to collapse. In the instant case, appellant cannot be deprived of his an alienable right of input tax adjustment merely due to 'non-filing' of monthly sales tax returns by the alleged suppliers particularly in the cases where output tax is yet payable by the suppliers and is recoverable from them under Section 3(3)(a) of the Act. No provision of the Sales Tax Act, 1990 or the Rules made thereunder authorizes the tax functionaries to deny and disallow input tax to the buyer due to non- filing of sales tax returns by the supplier. Under clause (1) of section 33 of the Act, it has clearly been laid down that where any person fails to furnish a return within the due date, such person shall pay a penalty of five thousand rupees and conversely, in the instant case, the department instead of penalizing the supplier with imposition of a penalty of five thousand rupees upon failure of filing of sales tax return has disallowed the whole amount of input tax of the buyer which is not only illegal and unjustified but also this act is utter violation of mandatory provisions of law. A report of non- filing of the sales tax returns by the taxpayer in the system may be due to several reasons including non-entry of data by the PRAL or denial of taxpayer of access to the system due to technical hardware problems. Here, section 11(1) of the Sales Tax Act, 1990 will come into play to force the non-filer to file tax return. Therefore, emphasis should be placed on prompt action by the tax administration under section 11(1) of the Sales Tax Act,. 1990 and to take coercive measures against the supplier instead of penalizing the naive buyer for the fault of others as 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 nobody could be punished for the wrong of others.
7. The word "suspected" did find any place in the Sales Tax Act, 1990 and the rules framed thereunder. There is neither any provision in the Statute to empower the Revenue to place a registered person in the list of suspected units nor any liability can be created against any person merely on suspicion and doubt as no specific order for blacklisting of such person has been provided by the department and even no action or proceedings had so far been taken against the said supplier despite expiry of years of inclusion of his name in the list of suspected units. It is however, very clear that mere inclusion of a unit in a list of suspicious units or declaring as a suspected unit does not render it fake until and unless it is declared as a blacklisted unit after due process of law as provided under section 21 of the Act therefore, recovery of already adjusted amount of input tax on the charge of suspected unit is illegal, unlawful and premature. It is well- settled principle of natural justice that nobody should be condemned merely on doubt and suspicion. Reliance is placed on the judgment of the Tribunal in a case "The Collector of Sales' Tax and Central Excise, Faisalabad v. Messrs Kamal Fabrics, Faisalabad' reported as (2011 PTD (Trib.).1143) and judgment of Customs, Excise and Sales Tax Appellate Tribunal, Lahore reported as (2010 PTD (Trib.) 1112).
8. The sales tax liability was created against input tax adjusted on the strength of invoices issued by the person whose registration was "suspended" therefore; the appellant was debarred from input tax against his invoices which was adjudged as recoverable. Suspension of registration is an interim order for conducting an inquiry and scrutiny of the matter where any tax fraud or massive tax evasion is suspected and recovery proceedings from the stakeholders can be initiated after establishing the charges of tax evasion and incidences of tax fraud and upon ultimate black-listing of a registered person as provided under section 21(2) of the Act. The inadmissibility of input tax against invoices of suspended unit whose ultimate fate in form of blacklisting or otherwise is yet to be determined is not justified under law therefore, recovery of adjusted amount of input tax upon suspension of registration is illegal and unwarranted and thus stands premature and invalid because no formal and final order of blacklisting under the law has been issued by the competent authority therefore; whole proceedings culminated in impugned show cause notice and adjudication order are nullity in the eye of law. This contention of the appellant is very much supported by the recent judgment of this Tribunal in case of "The CIR (R.T.O.), Faisalabad v. Messrs Chenab Board, Faisalabad" reported as 2014 PTD (Trib.) 558.
9. The supplier namely Messrs S.G. Impex was a registered person at the time of making of supplies to the appellant and input tax was claimed/adjusted against valid sales tax invoices issued by the alleged unit under section 23 of the Act during the period when it was registered with the department which cannot be denied and disallowed on his subsequent "de-registration". The Impugned recovery of input tax adjusted by the appellant pertains to the period May-2010 whereas the alleged supplier was de-registered w,e,f, 9-5-2012 as such the alleged invoices pertains to the period prior to the de-registration of the alleged supplier and bona fide input tax thereon cannot be denied merely on the objection of de-registered.
10. It is very astonishing how the department can deny and disallow input tax against invoices of persons who are "operative" showing hundred percent compliance level at e-portal of Federal Board of Revenue and showing normal tax profiles as there is no provision in the Act, which provides any authority and power to tax functionaries to make recovery of input tax credited on the strength of invoices of 'operative and normal units' as it would not only amount to denial of their fundamental right as its safeguard is constitutionally provided under the sacred book of Constitution of the Islamic Republic of Pakistan, 1973 but also amounts to make mockery of law showing incompetency and inefficiency on the part of tax functionaries always apprehended to be careful in the ways they have created this liability in future.
11. The vital fact in the instant case cannot be ignored that at the time of making transactions, alleged suppliers were enjoying their status as "operative persons" 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 suspected, suspended and blacklisted units cannot be made effective retrospectively. Right of input tax is a substantive and inalienable right of the buyer which cannot be denied to him on subsequent default of the supplier.
It is well settled law that 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 opinion, there is no provision in the Sales Tax Act, 1990 and the rules framed thereunder empowering the revenue authorities to recover amount of input tax adjusted by a buyer due to subsequent suspension and blacklisting of his supplier. In this regard, we gain strength from the landmark judgments of the Honourable Supreme Court of Pakistan ref: "Messrs Army Welfare Sugar Mills Ltd. And others v. Federation of Pakistan and others 1982 SCMR 1652, Messrs Anoud Power Generation Limited and others v. Federation of Pakistan and others PLD 2001 SCMR 340 and "Government of Pakistan v. Messrs Village Development Organization 2005 SCMR 492.
12. Needless 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. We find force in the contentions of the learned AR.
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.
13. We have further noted that the adjudicating authority has issued the impugned show cause notice for rejection of input tax vis-a-vis recovery of output tax which in our opinion is not only illegal but also contrary to the provisions of the Sales Tax Act, 1990 and is equivalent to defeat the scheme of sales tax laws as in case of default whatsoever on the part of any of supplier, a registered buyer cannot be held responsible by impeding him with liability on account of output tax otherwise, it would amount to double taxation and in turn double jeopardy to the appellant as primarily liability to pay, sales tax is on the supplier under section 3(3)(a) of the Act and not on the person receiving the goods but on the person making the supply and in this context, input tax adjusted by the appellant is basically the output tax of his supplier which may be recovered from the supplier instead of the buyer (appellant) and if any effort is made for recovery of input tax and output tax simultaneously from the buyer, it would definitely result in double taxation which is not permissible under any law of the land.
14. As far as, issue of tax fraud is concerned, the initial burden to prove that the provisions of tax fraud were attracted lied on the respondent-department and not on the appellant. In the instant case, the department could not prove the act of tax fraud under section 2(37) of the Act and for this reason, charge of tax fraud has no legal consequences in the light of judgment of honorable Sindh High Court, Karachi, in case of "Messrs Al-Hilal Motors Stores and others v. The 'Collector of Sales Tax and Central Excise (East), Karachi and others" cited as 2004 PTD 868. It is also a well- settled law that any act which had not been done knowingly, dishonestly or fraudulently did not come within the ambit of tax fraud.
15. The additional demand of default surcharge under section 34 of the Act and hundred percent penalty of amount of tax involved under section 33(13) of the Act is by all means is a tax of punitive nature and no penalty and default surcharge can be imposed and adjudged against a taxpayer through an adjudication order until and unless, each and every subsection is specifically mentioned and confronted in the show cause notice and if any penalty is imposed without confronting the relevant provisions as contained in subsections of section 33, it would definitely fall beyond the scope and contents of show-cause notice which would render it illegal, unlawful and void ab initio. The stance taken by learned counsel for registered person is fully supported by the ratio settled in the reported judgment of Apex Court of Pakistan in case of "The Collector Central Excise and Land Customs v. Rahim Din" reported as (1987 SCMR 1840). We have also found that the adjudicating authority has imposed a penalty equivalent to hundred percent of amount of tax involved but neither specified amount of penalty nor the extent of percentage of penalty in the impugned show cause notice, thus, hundred percent penalty imposed against the appellant is otherwise not recoverable with the said specification until and unless a lump-sum amount or percentage thereof given in its subsection is not confronted in the show cause notice. Reliance can safely be placed on the judgment of ATIR, Lahore in case of "Messrs Zahidjee Textile Mills Ltd., Faisalabad v. The Commissioner (Appeals) Inland Revenue (R. T.
0.), Faisalabad" reported as (2012 PTD (Trib.) 1123).
16. 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 void and are hereby set aside. The instant appeal filed by the taxpayer is accepted in the manners and to the extent as dilated supra.