CH. SHAHID IQBAL DHILLON, JUDICIAL MEMBER.---Titled appeal has been filed under section 46 of the Sales Tax Act, 1990 at instance of the assessee calling in question the impugned Order- inAppeal No, 383/2017 dated 16-10-2017 passed by the learned CIR (Appeals), Faisalabad.
2. Succinctly stated, facts of the instant case are that appellant has purportedly received refund of input tax pertaining to the tax periods from January-2010 to June-2010 on the strength of invoices issued by suspended/blacklisted units. Based on the said omission/irregularities, adjudication proceedings were initiated by the taxation officer by way of issuance of show-cause notice dated 26.08.2016 under section 11(3) of the Sales Tax Act, 1990. Resultantly, adjudication proceedings were culminated in passing of an order dated 27-12-2016 adjudging recovery of Rs, 4,268,584/- which was challenged before the learned CIR(A) who also rejected the appeal vide its appellate order dated 16-10-2017. The appellant being discontented and aggrieved by the said order has now filed the second appeal before this Tribunal. Initiating the arguments, learned counsel appearing on behalf of appellant has vehemently assailed the impugned show-cause notice and consequent orders as illegal, unjustified and arbitrary. Learned counsel argued that allegations against appellant are baseless because he procured the alleged goods under coverage of proper sales tax invoices issued under section 23 of the Act as duly incorporated in suppliers' sales registers sales tax returns, Summary statements and due tax was also paid in its monthly sales tax returns for periods in question therefore, appellant has rightly claimed/ received refund of input tax under section 10 of the Act. Learned counsel further contended that all payments to the alleged suppliers have also been made through banking channel from the business bank account of the appellant as requisitioned under section 73 of the Act and no violation whatsoever has been committed. In support of his stance, counsel produced purchase invoices, payment proofs along with bank statements, inward gate passes and sales tax returns along with summaries of the suppliers thereof as a proof for physical transfer of goods and as an evidence of financial veracity of the transactions. Conversely, when the learned DR confronted with the tax situation cited supra, in counter arguments, he has assailed the case on similar grounds and charges as levelled earlier in impugned show-cause notice as well as adjudged in consequent orders and nothing newel, except to reiterate earlier set of contentions, has been put forth by him and fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.
3. After having heard the arguments of both the rival parties and from the bare perusal of the relevant orders as well as relevant provisions of law and material made available before us, we have found that appellant does hold valid sales tax invoices duly incorporated in suppliers' sales tax returns and summary statements for the relevant tax periods and subsequent blacklisting will not disentitle the buyer from his lawful right of input tax in respect of invoices issued when the suppliers were registered and active persons unless, those invoices are specifically declared fake through speaking order and have direct nexus with suspension/blacklisting. Admittedly, invoices in question had no direct nexus with the subsequent suspension and blacklisting of the alleged suppliers and appellant in the instant case has also transacted all payments to his suppliers through banking channel by complying with the mandatory provisions of section 73 of the Act therefore, refund could not be denied to the appellant merely for the reason that the suppliers became suspended and blacklisted subsequently. Reliance is placed on judgments of Hon'ble Lahore High Court in case of "Commissioner Inland Revenue v. Messrss Amtex Limited, Faisalabad" reported as 2016 PTD 1695 and in case of "Commissioner Inland Revenue v. Messrs Al-Zamin Textile Mills (Pvt.) Ltd., Faisalabad" reported as (2018 PTD 986).
4. There is considerable merit in the contentions raised by the learned counsel for the appellant that provisions of section 21(3) of the Sales Tax Act, 1990 are pari materia with the provisions of Rule 12(5) of the Sales Tax Rules, 2006 and plain reading of section 21(3) of the Act clearly shows that those invoices which were issued after suspension and blacklisting but before suspension/blacklisting of a registered person shall be rejected through speaking order. No doubt ambiguity abounds in section 21(3) of the Act read with Rule 12(5) but it will be unreasonable to hold that merely because the supplier has become suspended and blacklisted, the entire series of invoices issued by him prior to his suspension and blacklisting shall be rejected. It will infringe the accrued vested rights of a buyer who held valid invoices when the supplier was not suspended and blacklisted rather an active/operative person at the time of transactions and was duly registered with the sales tax department. It is a well-settled principle of law that subsequent blacklisting of a supplier could not be made a tool to deprive of the buyer from his lawful right accrued prior to such blacklisting of any supplier due to any subsequent default whatsoever on the part of his supplier. We are of the firm opinion that there is no provision in the Sales Tax Act, 1990 and the rules framed thereunder empowering the revenue authorities to recover an 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 Hon'ble Supreme Court of Pakistan ref. Messrs Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others 1992 SCM R 1652 Messrs Anoud Power Generation Limited and others v. Federation of Pakistan and others PLD 2001 SC 340 and Government of Pakistan v. Messrs Village Development Organization (2005 SCM R 492).
5. We have also examined with due care that neither provisions of section 2(37) of the Act were invoked in impugned show-cause notice nor charge of tax fraud was levelled therein and even such charge of tax fraud was never adjudicated in an adjudication order however, the learned CIR(A) rejected the appeal on such charge therefore, order of learned CIR(A) is beyond the scope, stance and contents of show-cause notice and consequent adjudication order as is evident that the learned CIR(A) has decided an issue which was not sub-judice before him as part of the statement of allegations conveyed to appellant by way of issuance of show-cause notice and by giving a decision on the same, he has acted beyond his jurisdiction to pass a finding on such issue.
The outcome of the discussion is that where any adverse finding is given in the appellate order on the allegations or violation of provisions of law which were not primarily levelled and confronted in the show-cause notice, the entire proceedings would be rendered as illegal and void for reason of breach of natural justice, which is also breach of law. It is well-settled principle of law that if an order has been passed on the ground other than the grounds confronted to the taxpayer by way of issuance of show-cause notice has no legal sanctity. Reliance is placed on the judgment of Hon'ble Supreme Court of Pakistan reported as (1987 SCM R 1840).
6. In view of what has been stated, particularly in the light of record and legal propositions discussed hereinabove, impugned show-cause notice as well as consequent orders of both the authorities below are declared to be illegal, ab initio void and are thus hereby set aside. Appeal filed by the registered person is accepted as indicated above.