SHAHID MASOOD MANZAR, CHAIRMAN.--- Titled appeal has been preferred by the registered person assailing the impugned Order No. 06 dated 29.08.2018, passed by the learned CIR(A), Lahore.
2. Briefly stated, the relevant facts for disposal of the present appeal case are that Inland Revenue Officer, on selection of audit by the FBR under section 72-B of the Act, has conducted an audit of appellant's sales tax records under section 25 of the Act for the financial year commencing from 1st July 2013 ending on 30th June 2014.
Resultantly , an audit report dated 23.06.2 017, was prepared in which certain discrepancies were pointed out which, were duly communicated to the register ed person through a show-cause notice dated 11.09.2017. Detail is as under:- i. Non-provision of payment proofs under section 73. ii. Sales of Motor-vehicles without charging of sales tax. iii. Non-deduction of withholding tax on advertisement. iv. Penalty for late provision of record. v. Unlawful adjustment of input tax. vi. Inadmissible input tax against purchase. vii. Suppression of sales through bank credit transaction. viii Further Tax. ix. Suppression of sales via dif ference in consumption. x. Sales tax not withheld on purchases from unregistered persons.
In response to above said show-cause notice and subsequent reminders, allegedly, no one appeared on behalf of the registered person to represent his case. Accordingly, appellant was proceeded in absentia without affording him with any opportunity of hearing and the case was decided by the adjudicating authority on ex parte basis by upholding the charges levelled against him. Consequently, the impugned assessment order dated 03.04.2018 was passed whereby an amount of Rs.225,135,596/- along with default surcharge amounting to Rs.125,935,932/- and a penalty of Rs.11,329,634/- was ordered to be . paid by the registered person.
3. Being aggrieved, the taxpayer went in appeal before the learned CIR(A) and assailed the treatment meted out at assessment stage. The learned CIR(A) vide impugned order dated 29.08.2018 decided the appeal and he remanded the case back to the assessing authority for de novo assessment while observing that proper opportunity was not provided to the appellant at assessment stage.
4. The appellant being not satisfied with the order of the learned CIR(A) has filed instant second appeal on the following grounds: -
1. That the orders of the Commissioner (Appeals) as well as the Deputy Commissioner (IR) are bad in law and against the facts of the case.
2. That the order of the Commissioner (Appeals), Lahore is not a self-speaking order as per the provisions of subsections (2) and (3) of section 45B(IA) of the Sales Tax Act, 1990; hence, any order, which would lack determination of transnational failure as required by law, would not sustainable in the eye of law.
3. That the case of the registered person falls under sub Para (e) of Para 6.3 to Para 6 titled as Exclusions of Audit Policy , 2015 announced by the FBR. The relevant clause is reproduced as under: - "(e) All cases already taken up for audit for Tax Periods(s) July 2013 to June 2014 under sections 25 and 38 of the Sales T ax Act, 1990".
Hence, the proceedings initiated by the DCIR are not sustainable in the eye of law and the worthy Commissioner (Appeals) remand the case without considering the facts and circumstances of the case.
4. That the first show-cause notice issued by the Deputy Commissioner (IR) nor the Commissioner (IRO and the Honourable Lahore High Court declared such assessment under section 11 of the Sales Tax Act, 1990 being illegal void ab initio in the eye of law and the learned Commissioner (Appeals) ignored the binding decisions of the higher appellate forums illegally remanded the case without any basis and justification.
5. That the show-cause notice under section 11(2) is illegal as adjudication officer failed to establish any default as provide in the said provision of the Sales Tax Act, 1990 and the learned Commissio ner (Appeals) failed to give any verdict on it.
6. That the proceedings for the Tax Perio d 07/2013 to 06/2014 have already been completed and the said order is duplicate one and the appellate authority failed to give any verdict on it.
7. That the input claimed by the registered person on valid "tax invoice" issued under section 23 of the Act was illegally disallowed by the adjudicating authority against the binding precedent of the higher appellate courts and the learned Commissioner (Appeals) failed to give any opinion on it.
8. That the adjudicating authority illegally disallowed input tax credit amounting to Rs.72,900,695/- under the garb of section 73 of the Act and order to recover the same is highly unjustified and is hit by the doctrine of double jeopardy and the worthy Commissioner (Appeals) remand the case without considering the facts and circumstances of the case.
9. That the learned DCIR disallowed an amount of Rs.360,000/- along with default surcharge amounting to Rs.201,600/- and penalty under section 33(5) of the Sales Tax Act under the garb non-payment of sales tax on disposal of vehicles when the business activity of the registered person is manufacturer laundry soap and detergent and supply thereof and the appellate authority failed to give any verdict on it.
10. That the adjudicating officer charg ed an amount of Rs.233,435/- being violating the provision of SRO No.660(I)/2007 dated 30.06.2017 under section 11(2) of the Sales Tax Act as the said section does not deal with default of withholding tax; hence, the order is illegal in void ab initio and the appellate authority failed to give any verdict on it.
11. That the adjudicating officer illegally charged Rs.65,000/- under section 33(9) (a) (b) and (c) of the Act for non filing of certain document as the taxpayer duly complained with the provisions of the Sales Tax Act, 1990 and the learned Commissioner (Appeals) authority failed to give any verdict on it.
12. That the adjudicating officer was not justified to disallow the input tax credit amounting to Rs.4,069,6887- against the entire purchases declared by the registered person and order to recover the same along with default surcharge under section 34 of the Act at Rs.2,279,025/- and penalty under section 33(5) of the Act at Rs.203,484/- when the registered person duly maintained the Sales Tax record and supplier are "OPERA TIVE " at the time of business transaction; hence, the Order -in-Original is not sustainable in the eye of law the learned Commissioner (Appeals) authority failed to give any verdict on it.
13. That the adjudicating authority estimated suppression of sales and order to recover the sales tax at Rs.126,489,959/- along with default surcharge under section 34 of the Act at Rs.70,864,377/- is illegal as adjudication officer failed to established any collusion or deliberate act of the registered person the learned Commissioner (Appeals) authority failed to give any verdict on it.
14. Without prejudice to above legal issues, the element of "SALE " is not reflected through, the impugned Order -in- Original; hence order is not tenable in the eye of law .
15. That the learned DCIR charged further tax under section 3(1A) of the Act at Rs.8,631,01/- and order to recover the same along with default surcharge under section 34 of the Act at Rs.4,833,400/- and penalty under section 33(5) of the Act at Rs.431,553/- without any basis and justified and the learned Commissioner (Appeals) authority failed to give any verdict on it.
16. That the adjudicating authority has made sales on consumption basis and order to recover sales tax at Rs.12,130,194/- along with default surcharge under section 34 of the Act at Rs.6,792,908/- and penalty under section 33(5) of the Act at Rs.606,509/- without any basis and justified as he failed to established any collusion or deliberate act of the registered person and the learned Commissioner (Appeals) authority failed to give any verdict on it.
5. At the very outset of his arguments, the learned AR for the appellant contended that very initiation of audit proceeding and subsequent assessment is not sustainable in the eye of law. He explained that audit of the tax affairs of the registered person for the tax periods July 2013 and 2014 had already been initiated and concluded under section 38 of the Sales Tax Act, 1990 and as per sub-para (e) of Para 6.3 to Part 6 titled as Exclusion of Audit Policy , 2015 announced by the FBR, the case of the registered person was liable to be dropped for audit being a second audit of the same tax periods. Hence, the initiation of audit proceedings and subsequent assessment on the basis of illegal second audit conducted is not sustainable in the eye of law. In support of his arguments, the learned AR placed before us copy of Audit Policy as well as order passed by the department in terms of earlier audit conducted under section 38 of the Act. It is contended by the learned AR that the learned CIR(A) without considering the said legal objection raised before him has remanded the case to the assessing- authority for de novo decision which action is even otherwise is not sustainable in the eye of law as the learned CIR(A) has no power to remand the cases back to the assessing authority . It is further contended by the learned AR that since the proceedings for the period under appeal has already been taken place, therefore, the second assessment completed for the same tax period is duplicate one, hence, not sustainable in the eye of law .
6. On merits of the case, it is submitted by the learned AR that the adjudicating authority illegally disallowed input tax credit amounting to Rs.72,900,695/- under the garb of section 73 of the Sales Tax Act, 1990, and order to recover the same is highly unjustified and is hit by the doctrine of double jeopardy . It is asserted by the learned AR that liability to pay sales tax is on the supplier under section 3(3)(a) which is independent to the provisions of section 73 and in cases of delayed payments, no revenue loss is involved particularly when the supplier has already paid out put tax to government, therefore, demanding tax under the garb of section 73 from the buyer despite having it deposited by the supplier in treasury is tantamount to double jeopardy . In support of his arguments, the learned AR placed reliance on the decisions of this Tribunal reported as 2017 PTD 846 and 2018 PTD 1436 . The learned AR also placed before us complete ledger of "purchases and payments detail in terms of section 73.
7. It is also the contention of the learned AR before us that the assessing author ity has unjustifiably and illegally disallowed the input tax credit amounting to Rs.4,069,688/- against the entire purchases declared by the registered person and order to recover the same along with default surcharge and penalty when the registered person duly maintained the complete sales tax record and suppliers are also operative and FBR's e-portal at the time of business transaction. Therefore, it is contended by the learned AR that recovery of tax under this allegation is not sustainable in the eye of law. It is further contended by the learned AR that there was justification for the adjudicating authority to estimate suppression of sales and order to recover the sales tax at Rs.126,489,959/- along with default surcharge and penalty is illegal as adjudication officer failed to established any collusion or deliberate act of the registered person. It is contended by the learned AR that there no suppression of sales and the estimate of suppression of sales on the basis of alleged credit entries appearing in the bank accounts is without any justification and against the ratio settled by the higher appellate fora, including this Tribunal. In support of his arguments, the learned AR placed reliance on the decision of Hon'ble Karachi High Court reported as 2004 PTD
868. The learned AR also placed before us 'banks receipts analysis' for the period under consideration to reconcile the credit entries appearing in the bank accounts.
8. It is also the contention of the learned AR before us that the assessing authority has unjustifiably and illegal charged further tax under section 3(1A) of the Act at Rs.8,631,01/- when the supplies made were not liable to further tax being made to end consumers. It is further contended by the learned AR that assessing authority had estimate sales merely on presumption and for the this purpose he illegally made comparison of Annexure-F and annual accounts vis--vis consumption shown in the returns. It is contended that working of goods amounting to Rs.67,389,970/- on the alleged premise of sales out of sales tax record is merely on supposition and presumption, hence, estimate of sales on consumpt ion basis to recover sales tax at Rs.12,130,194/- along with default surcharge, is without any basis and justified as he failed to established any collusion or deliberate act of the registered person.
9. Conversely , the learned DR supported the order of the assessing authority and contended that audit of the tax affairs has rightly been conducted for the tax periods under consideration as earlier audit conducted under section 38 has no value in the eye of law as for such proceedings no proceedings were finalized under section 11 of the Sales Tax Act, 1990. Thus, he contended that audit proceedings initiated and concluded under section 25 read with section 72B of the Sales Tax Act, 1990, were justified and in accordance with law. It is further submitted by the learned AR that the registered person has failed to join in the adjudication proceedings, therefore, the assessing authority was justified to pass the impugned assessment order and create the sales tax liability .
10. We have heard the arguments of both sides and have perused the available record, including the case law cited at the bar. After due consideration, we find that submissions made by the learned AR at the bar on legal and factual premise carries substantial weight. The learned CIR(A) has illegally remanded the case back to the assessing authority which is against the decisions of this Tribunal cited at bar by the learned AR as he ceases to have such power under section 45B of the Act. Reliance in this regard is placed on the reported decisions of this Tribunal cited as 2017 PTD 373 and 2015 PTD 931. Therefore, the order of the CIR(A) is not sustainable in the eye of law. Now, coming up to the other legal objection of the learned AR with regard to non-closure of audit under section 25 read with section 72B for the tax periods July 2013 to June 2014. The case of the registered person was selected for audit under section 72B of the Sales Tax Act, 1990 and audit proceedings were completed and consequential assessment order under section 11 of the Act was passed which is subject matter of appeal before us. Federal Board of Revenue issued "Audit Policy , 2015" wherein Part-6 provides certain "Exclusions" where audit was not required to be carried for the tax periods July 2013 to June 2014. Here, we deem it appropriate to reproduce the relevant Part-6 of the "Audit Policy , 2015" which reads as under: - Part 6 EXCLUSIONS FBR shall conduct random computer ballot for selection of 7.5% cases for audit out of the total Income Tax, Sales Tax and FED returns filed for Tax Year 2014 and for corresponding tax period i.e. 1st July 2013 to 30th June 2014. Certain exclusions have been identified and approved by the Board which pertains to cases where audit is not required for this year . Those exclusions are as under: - 6.3 Sales T ax Corporate e) All cases already taken up for audit for Tax Period (s) July 2013 to June 2014, under sections 25 and 38 of the Sales T ax Act, 1990; (emphasis provided)
From the bare perusal of sub-clause (e) of above said "Audit Policy 2015", it is clearly evident that audit of the tax affairs is not required for cases already taken up for tax periods July 2013 to June 2014 under sections 25 and 38 of the Sales Tax Act, 1990. The learned AR placed before us an order dated 30.03.2017 pertaining to the tax periods January 2011 to June 2015, which was passed by the ACIR, Unit-27, Zone -IV, LTU, Lahore. The said order was passed as a consequence of audit proceedings initiated and completed under section 38 of the Sales Tax Act, 1990 by the Directorate of Intelligence and Investigation (IR), Lahore. In view of the fact that the audit for the tax periods July 2013 to June 2014 has alrea dy been carried out by the department, the subsequent audit carried out by the department under section 72B and A consequential assessment order passed is not sustainable in the eye of law being sheer violation of the FBR on instruction contained in above referred "Audit Policy 2015". The said guidelines/instructions are binding on all field formations of the FBR. The stance taken in this behalf by the assessing authority and also contended by the learned DR is not correct as the audit proceedings initiated by the Directorate were culminated into passing of an assessment order which was passed under section 11(3) of the Act, although the demand raised through this order was admitted and deposited by the registered person. Looking at the matter in its entirety , we are inclined to hold that audit carried out by the assessing authority in the case being second audit/duplicate audit and consequential subsequent assessment order passed is not sustainable in the eye of law which is accordingly cancelled/annulled.
11. On merits of the case, the learned AR has also very strong case although we have already declared very initiation of audit proceedings and subsequent assessment order void ab initio illegal. In the adjudication proceedings, the assessing authority completely ignored the binding instructions / decisions of the higher appellate fora and he passed the assessment order on supposition / assumption and seems to be to just create huge tax liability against the registered person. Here, we deem to reproduce the findings given by the Hon'ble High Court reported as 2017 PTD 686 , wherein his lordship was pleased to hold that: "18. Role of audit officer is to dig out the instance of tax evasion and non-compliance to the statutory provisions causing tax evasion. His role finished on issuance of Audit Report, after seeking explanation, based on which further action is to be taken by an officer having quasi-judicial power of adjudication. The audit proceedings being inquisitorial and administrative in nature akin to function of prosecution in criminal cases, which finishes by preparation and submission of "Challan". Under the Federal Taxing Statutes, the unsatisfactory reply to the explanation sought by audit officer becomes an "information" or "definite information" based on which show-cause notice is issued to initiate quasi-judicial proceedings . Taxpayer has options, either to accept the confronted discrepancies/allegations and pay tax with concessionary penalty rates or to conte st by filing reply to show-cause notice. Thereafter , process of adjudication starts, which is followed by a speaking and reasoned order . Asking an audit officer to raise demand and making monthly collection through qualitative indicator is alien to the scope and concept of audit . Any plea bargain to drop audit proceedings, if certain percentage of extra tax is paid, is against the provisions, in Federal Taxing Statutes, dealing with audit. Selection for audit cannot and should not allowed to be used for raising revenue simpliciter , without conducting any audit and preparation of Audit Report".
12. With regard to recovery of sales tax at Rs.72,900,695/- along with default surch arge and penalty , on the alleged violation of section 73 of the Act, we have found that that there is no controversy in the manner of payments having been transacted through prescribed banking mode, but its time is delayed over one hundred and eighty days beyond date of tax invoice therefore, this procedural lapse and technical omission, entailing no revenue less at all, is condoned to maintain his inalienable right of input tax of the appellant. It is established beyond any shadow of doubt that deposit of sales tax is indepe ndent to that payment under section 73 of the Act hence, in cases of delayed payments, no revenue loss is involved particularly when the supplier has already paid output tax to the government therefore, demanding refunded amount of input tax back from the buyer despite having it deposited by the supplier in the national exchequer would definitely amount to double taxation not permissible under any law of the land. The ratio decidendi by the Hon'ble Lahore High Court in case of "Commissioner Inland Revenue v.
Messrs Chawala Enterprises, Faisalabad " vide S.T.R.. No. 207/2016, decided on 16-10-2018 is the most relevant in all fours to the case at instance of the appellant. The relevant extract of the said judgment is reproduced as under:- "Plain reading of section 73(2) shows that buyer is not entitled to claim input tax credit, adjustment or refund, etc if the payment of the amount is made other than the manner prescribed in subsection (1) of Section 73 of the Act.
Proviso to subsection (2) of Section 73 of the Act further postulates that in case of a payment against transaction on credit, the same is to be transferred within 180 days of issuance of tax invoices. In the present case admittedly , payments were made through banking channel and in the manner prescribed in subsection (1) of Section 73 of the Act. Therefore, the respondent assessee was not disentitled for input tax adjustment under subsection (2) of Section 73 of the Act. So far as, the proviso to subsection (2) of Section 73 is concerned, it is not case of the department that payments were for a transaction on credit. Therefore, the condition of 180 days; was not applicable in this matter . In any case, when the payment has been made through banking channel as prescribed in subsection (1) of section 73 of the Act and the only lapse is of payment beyond 180 days, (in a credit transaction), even then, the ossessee could at best be liable for penalty under sub-clause 16 of section 33 of the Act but cannot be denied input tax adjustment."
13. Considering the facts and circumstances of the case and taking guidance from case mentioned supra and the record produced by the learned AR and also taking consideration the purchases and payments details under section 73, we allow the input tax credit disallowed under the alleged violation of section 73 of the Sales Tax Act, 1990. Orders of the authorities below are cancelled accordingly .
14. As regards recovery of alleged unlawful adjustment of input tax at Rs.4,069,688/-, we find that the said amount was ordered to be recovered on ground that either no sale or less sale was shown by the suppliers to the registered person. The learned AR. placed before us relevant record in the shape of valid invoices, payment poof to show that transactions were made in accordance with law and also that the supplie rs were "operative" at the FBR's portal. Therefore, we are of the opinion that the recovery of input tax from the appellant which has already been paid to the suppliers is tantamount to double jeopardy which is not permissible under the law. Reliance in this behalf is placed on the reported judgment cited as 2011 PTD 2679 (Trib). Under the circumstances, the recovery of input tax from the registered person is unjustified and illegal. Therefore, the orders of the authorities below in this regard are cancelled.
15. So far as the allegation of recovery of sales tax at Rs.126,489,959/- on' the allegation of suppression of sales is concerned, we find that recovery was ordered on the ground that the assessing authority on the perusal of bank statements observed that the registered person had declared total turnover/sales amounting to Rs.863,107,121/- whereas the credit side of bank accounts maintained by the registered person reveals that Rs.1,565,829,1 18/- is appearing in different bank accounts. Accordingly , it was concluded that the appellant had concealed supplies amounting to Rs.702,721,997/-, hence, recovery of sales tax at Rs.126,489,959/-. In this behalf, we are of the opinion that the action of the assessing authority is not sustainable in the eye of law as there is no scope of estimation / supposition / presumption in the sales tax proceedings. The learned AR reconcile before us through bank receipts analysis to show that there is no concealment of sales. The issue in hand has already been settled by the Hon'ble Karachi High Court in the case of Messrs Al-Hilal Motors Stores and others cited as 2004 PTD 368 in the following manner:- "----Sales tax liability could not be assessed / imposed solely on the basis of Bank statement of the registered person without any evidence of corresponding taxable supply made in the course of taxable activity --- Cash-credits appearing in the account books for which no satisfactory explanation was furnish ed could not be treated as the amount received on account of taxable supplies or in furtherance of taxable activity --- Any Bank account of a registered person without any nexus to taxable supplies, could not be treated as amount received from such "supplies" and liable to sales tax ---- Where the allegation of "tax-fraud" was made, the onus of proof was on the Department----".
16. In view of the facts and circumstances and in the light of above ratio settled by the Hon'ble Karachi High Court, we are inclined to hold that the recovery of sales tax amount on the alleged concealment of supplies is without any basis. Therefore, the recovery in this regard is deleted and orders of the authorities below are cancelled.
17. The assessing authority charged further tax under section 3(1A) of the Act on the supplies made to unregistered persons whereas it is the stance of the registered person that he had supplied its products to the persons who were neither liable for registration nor were actually registered under the Act; as undoubtedly , all of them were end-consumers. Learned counsel further assailed that the sales made to end-consumers were not subject to levy of further tax under section 3(1A) of the Act in the light of cumulative reading of section 3(1A) of the Act read with S.R.O. 648(1)/2013 dated 9th July-2013 wherein, supply of goods directly to the end-consumers have been excluded from the provisions of section 3(1A) of the Sales Tax Act, 1990. After having heard both the sides, we are of the firm opinion that the expression "End-Consumers " has not been defined in the Act therefore, its extent and scope would be determined by reference to the ordinary dictionary meanings and under the established principles of statute interpretation, commonly known as the principle of 'Ejusdem Generis'. This principle provides that words and phrases occurring in a provision of law are not to be taken in an isolated or detached manner , dissociated from the context, but these are to be read together and construed in the light of overall context of the provision of the law. The expression "End-Consumers" as used in the notification is to be interpreted in the light of words associated to it and not in pure isolation as per whims and wishes of Inland Revenue. Undoubtedly , the appellant is engaged in supply of its produ cts to end-consumers and no further tax is chargeable thereon under the first proviso to subsection (1A) of section 3 of the Act, wherein it is the Federal Government who may by a notification in Official Gazette, specify taxable supplies in respect of which further tax shall not be charged, levied and paid. Accordingly , sales made to end-consumers are excluded and exempted for the purpose of levy of further tax in terms of R.O.S, 648(1)/2013, dated 9th July-2013 issued under the first proviso to subsection (1A) of section 3 of the Act therefore; no further tax was payable by the appellant against the supplies made to end consumers.
18. During the course of scrutiny of sales tax record and financial accounts vis--vis Annexure-F of sales tax returns filed by the appellant, it was found by the assessing authority that the registered person had suppressed his sales and sold goods amounting to Rs.67,389,970/- and thus evaded sales tax at Rs.12,130,194/-. We have looked into the matter and after due consideration, we find that the instant observation is presumptive in material and imaginative in character as no material evidence has been provided to the effect that any clandestine removal of the alleged goods or receipt of money in respect those goods was made without which the observation stands unsubstantiated and thus remains in thin air. No impropriation on account of raw material required for production of the alleged goods is either existed on record or reported by the detecting agency without which the allegation has no legal stance. Since, the so-called standard ratio is defective in itself therefore, any assertion made therefrom has no legal worth and consequences. The detecting agency has raised exorbitant demand of sales tax merely on assumptions and presumptions without any tangible basis and has failed to provide documentary or any other corroborating evidence regarding physical delivery of the Roods, receipt of any consideration of money and more so, the existence of any buyer without which no supply can be effected under section 3 of the Act. The 'dispossession' and 'actual transfer of goods' by the manufacturer to the other party is a basic requirement to bring the goods within the charge and unless, the department is in a position to establish that the respondent did more production and same has been transferred to another party , sales tax cannot be charged under section 3 of the Act.
The estimate, however , strong it may be, unless is based upon some corroborating and solid evidences and reasons to believe cannot lead to creation of huge demand of sales tax. Sale of goods warrants physical transfer of goods or property in goods to any other person for certain consideration in money without which no transaction on account of sale/purchase can be deemed to have been affected. The instant case is totally based upon hypothetical calculations without any solid proof which established beyond any shadow of doubt that impugned liability of sales tax is based on the figures and calculations, which are imaginary and presumptive without any logical and legal basis and no tax could be levied on the basis of assumption and presumption. It is now well- settled law that sales tax imposed on the basis of some assumption or presum ption not warranted in law shall always be struck down . Reliance in this regard can safely be placed on the judgment of Hon'ble High Court, Karachi reported as (2001 PTD 2982 ).
19. Keeping in view the above discussions, particularly in the, light of law, record and judgments quoted supra, the outcome is obvious that we are inclined to accept the appeal filed by the appe llant/taxpayer and hold that the impugned show cause notice and consequent orders of both the authorities below are illegal; void ab initio, without jurisdiction and are thus hereby vacated/cancelled. The instant appeal filed by the registered person is accepted on the grounds and in the manners as indicated above.