MUHAMMAD SAJID MEHMOOD SETHI, J. --- Through instant Reference Application under Section 47 of the Sales Tax Act, 1990 ("the Act of 1990 "), following questions of law, asserted to have arisen out of impugned order dated 28.11.2018, passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal "), have been proposed for our opinion:-- (1). Whether on the facts and circumstances of the case the Appellate Tribunal has not erred in law by allowing credit of input tax claimed on the basis of fake invoices without appreciating that non-obstante Section 8(1)(d) of the Sales Tax Act, 1990 specifically bars the claim of input tax against fake invoices?
(2). Whether on the facts and circumstances of the case the Appellate Tribunal has not erred in law by ignoring that the registered person and claimed input tax on the basis of fake invoices issued by the dummy/fictitious firms involved in paper transactions only?
Whether the Appellate Tribunal has not erred in law by not appreciating that after investigation the suppliers of the registered person non-existent and their addresses were bogus?
Without prejudice to the above, whether the Appellate Tribunal has not erred in law by holding that blacklisting could not be applied retrospectively when Section 21(3) specifically provides that refund or input tax credit claimed against the invoices issued by a blacklisting person, shall not be admissible prior or after such blacklisting?"
2. Brief facts of the case are that it transpired to applicant-department that respondent-taxpayer claimed inadmissible adjustment of input tax amounting to Rs. 2,777,445/- on account of fake/flying invoices issued by fraudsters. A Show-Cause Notice was issued to respondent-taxpayer in this regard, which culminated in passing of order-in-original dated 12.08.2015. Feeli ng aggrieved, respondent-taxpayer filed appeal before CIR (Appeals), which was dismissed, vide order dated 30.06.2016. Being dissatisfied, respondent-taxpayer preferred second appeal before learned Appellate Tribunal, which was accepted vide order dated 28.11.2016 and orders passed by fora below were vacated Hence, this Reference Application.
3. Learned counsel for applicant-department submits that the registered person claimed input tax adjustment of sales tax against invoices issued by the blacklisted units in violation of Section 2(37) of the Act of 1990. He adds that learned Appellate Tribunal, while passing impugned order , failed to interpret the provisions of "Tax Fraud". At this stage, he was confronted with the fact that the issue in hand has already been settled by this Court vide judgment dated 01.11.2017, passed in STR No. 242 of 2015 titled Commissioner Inland Revenue v. M/s. Ali Hassan Metal Works and findings recorded therein are squarely applicable.
4. Arguments heard. Available record perused.
5. The operative part of impugned order dated 28.1 1.2018 reads as under:-- "In the instant case, provision of Section 73 of the Act for bank payments have duly been complied with by the appellant consequently , input tax credit against invoices of such blacklisted perso ns cannot be denied and sales tax refunded thereon cannot be recovere d after insertion of sub-section (3) of Section 21 to the Act wherein it has categorically been laid down, that input tax shall be allowed if payments are made through banking channel irrespective of the fact that the suppliers units are subsequently blacklisted or their registration have been suspended or blacklisted.
The second Supplier namely M/s. KHANJEE Corporation and G&B Enterprises were Blacklisted on 03.07.2013 as verified with the FBR's Taxpayer online verification system dated 14.05.2015 while the purchases were made from the said business unit for the period Dece mber 2010 and January 2011 and the said business unit was also active and operative at the time of purchases made from them and never has been suspend or blacklisted at the time of purchases, which is also evident from the taxpayer's online verification system dated 19.04.201 1 and ATL status. If the supplier unit has committed tax fraud then why should the Answering Respondent be penalized for the act of the suppliers; the action of the department is based only on the report of the I&I department. As mentioned above and by following the dictum laid down in the above-referred judgments of this Tribunal and the Hon'ble High Court recent judgment the contention made by the learned AR denied."
6. Perusal of impugned order shows that learned Appellate Tribunal has given findings of facts that respondent- taxpayer was not involved in any tax fraud and transacted with the suppliers in accordance with law. The business unit was active and operative at the time of purchases and was never suspended or blacklisted. Even otherwise, initial burden lies on the applicant-depar tment that invoices have been issued during suspended or blacklisted period and in case invoices were not issued during period of blacklisting, the cause or reason for blacklisting has some nexus with the invoices. Taxation Officer did not establish that said invoices were either fake or flying or the claimed tax was not deposited in the Government Exchequer . Admittedly-, the issue involved in this case has already been dealt with and answered by this Court vide judgment dated 01.11.2017, passed in the case of M/s. Ali Hassan Metal Works supra , wherein the questions similar to the proposed question were re-settled in one question, which was decided against applicant-department. The relevant part of the said judgment is reproduced hereunder:- - "9. Intention of the Legislature; as is discernable from the provisions of Section 21(3) read with Section 8(1) (ca), is that reclaim (refund) or adjustment of input tax (tax credit) should not be allowed for an invoice against which sales tax has not been deposited in Government treasury . This clog appears to be logical because a tax not deposited in the Exchequer , cannot and should not, allowed to be withdrawn or adjusted. Claim of such refund or its adjustment amounts to rob the Exchequer and cheat upon the State. Conversely; to deny adjustment or refund of a tax deposited in the Treasury , if a registered person is entitled under that law , is against the legislative will.
10. The authorities, exercising quasi -judicial powers under a statute are bound to conduct a fair adjudication. To be dealt in accordance with law, due process and fair trial are inalienable fundamental rights guaranteed under Articles 4 and 10-A of the Constitution of the Islamic Republic of Pakistan, 1973 ("Constitution"). August Supreme Court of Pakistan in the Province of East Pakistan v . MD. Mehdi Ali Khan (PLD 1959 SC 387) held:-- "The determination of every right or liability claimed or asserted in a legal proceedings depends upon the ascertainment of facts and the application of the law to the facts so found. It is a normal feature of the judicial process first to discover the facts and then to determine what rights and liabilities follow from the application of the law to the facts found."
11. While invoking/applying the provisions of Section 21(3), Commissioner or Taxation Officer has to ascertain the fact that the invoices were issued during suspended or blacklisted period. In case invoices issued prior to blacklisting, the cause or reason for blacklisting has some nexus with the invoices. Bottom line is that tax 'was not paid or deposited against the invoices. To prove these facts burden is upon the revenue, however , this burden can be shifted upon the registered person claiming adjustment or refund of tax, in cases of tax fraud, in accordance with the provisions of Section 2(37) of the Act of 1990. Not by confronting, merely , that the supplier was blacklisted subsequently , initial burden, before shifting, is to be discharged by the revenue, as is held in Al-Hilal Motors Stores and another v. Collector , Sales Tax and Central Excise (East) and another (2004 PTD 868), relevant excerpt of which is reproduced for facility:-- "A perusal of the show-cause notice as well as material produced before us further shows that no case of any tax-fraud has been made out whereby the burden of proof can be shifted to the appellants. The learned two forums below have misdirected in placing the burden of proof on the appellants in terms of the provisions contained in Section 2(37) defining the expression "tax-fraud" without realizing that in order to attract the above provision the initial burden lies on the Department to show that an assesses, knowingly, dishonestly or fraudulently and without any lawful excuse has done any action or has caused to be done or has omitted to take any action or has caused the omission to take any action in contravention of duties or obligations imposed under this Act or rules or instructions issued thereunder with the intention of understanding the tax liability of underpaying the tax liability Once this burden is discharged by the Department, only then, the burden is shifted to the assessee to establish that the act done was without any knowledge on his part or without any intention of dishonesty or fraud and was done with any lawful excuse."
12. The questions proposed are not couched in proper words to clinch the proposition of law arising from the impugned order , therefore, we intend to resettle the question in following words:-- "Whether Taxation Officer was justified to invoke the provisions of Section 21(3) of the Sales Tax Act, 1990 or Rule 12(5) of the Sales Tax Rules, 2006 for not entertaining invoices, issued prior to blacklisting of supplier , for tax credit or refund, without establishing, through self-speaking order , that the invoices were fake or flying because the claimed tax was not deposited in National Exchequer?"
13. Our answer to the resettled question is in Negative.
Reference Application is decided against the applicant department."
7. Following the ratio settled in above reproduced case, instant Reference Application is disposed of in the same terms.
8. Office shall send a copy of this order under seal of the Court to learned Appellate Tribunal as per Section 47(5) of the Act of 1990.