CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).--(I). This appeal filed by the registered person is against the order-in-appeal No. 270/2017 dated 09-08-2017 passed by the learned CIR(A), Faisalabad whereby he while maintaining the order-in-original No. 141 of 2016 dated 28-10-2016, dismissed the appeal.
2. Succinct facts leading to the instant case are that preliminary probe on the basis of record pertaining to the tax periods from December, 2006 to May, 2009 retrieved from the smart system as well as e-FBR portal revealed that appellant has adjusted input tax of Rs. 1,699,650/- on strength of invoices issued by the suspended/blacklisted suppliers and thus input tax credit claimed by the appellant on the basis of invoices of blacklisted units cannot be treated as genuine purchases and there are reasons to believe that appellant has committed tax fraud under section 2(37) of the Act by adjusting input tax credit on the basis of fake invoices.
Resultantly, the appellant was called upon to a show cause notice dated 03-05-2016 issued by the learned DCIR as to why an amount of input tax worth Rs. 1,699,650/- illegally adjusted on the strength of invoices issued by suspended and blacklisted units, may not be recovered under section 11(3) of the Act alongwith default surcharge under section 34 of the Act and penalty under section 33 of the Sales Tax Act, 1990. In response to show cause notice, appellant filed written reply on 27-10-2016 duly contesting and denying the charges leveled against him but the learned IRO adjudged liability of sales tax alongwith default surcharge and hundred percent penalty vide order-in-original dated 28-10-2016 without considering the relevant record and without any cogent and plausible reasons. Being dissatisfied and aggrieved by the said order, appellant filed the first appeal before learned CIR(A), Faisalabad who dismissed the appeal vide order-in-appeal dated 09-08-2017 without application of independent judicious mind and approach on legal as well as on factual infirmities and improprieties pointed out in its memo as also assailed during the course of hearing. The appellant being discontented and aggrieved by the said order has now filed the second appeal before this Appellate Tribunal.
3. Initiating the arguments, learned counsel vehemently argued that the learned CIR(A) has given no exhaustive judgment instead of retrieving to primitive assertions already taken in the. adjudication order and neither discussed the grounds filed nor even a single question has been attended to and answered by the CIR(A) while handing down the impugned judgment. Neither the legal objections raised in the appeal and forcefully argued have been considered and appreciated nor answered by the learned CIR(A) which amounts to condemn the appellant unheard. Learned counsel for the appellant has vehemently contented that the impugned order is erroneous in law and the same is based on misconceived facts. It was however forcefully urged on behalf of the appellant that the impugned show cause notice dated 03-05-2016 for recovery of sales tax pertaining to the tax periods from December, 2006 to May, 2009 is hopelessly time barred under section 11(5) of the Act. Reliance, he has placed, on the judgments of Apex Court of Pakistan reported as (PTCL 1993 CL 532) & (PTCL 2006 CL 373) and judgments of Hon'ble High Court, Lahore reported at (2008 PTD 1973), (PTCL 2008 CL 365) & (PTCL 2009 CL 75). Learned counsel further argued on blacklisting issue has already been settled as provisions of the Rule 12(5) and section 21(3) of the Act as declared pari materia in nature cannot be applied retrospectively for disallowance of input tax adjustment against invoices for any prior period issued by a registered person who have subsequently been suspended or blacklisted. He relied upon the judgments passed by Hon'ble High Court, Lahore in favour of taxpayer reported as (PTCL 2016 CL 472), (PTCL 2018 CL 801), (PTCL 2018 CL 16), (PTCL 2019 CL 78) & (PTCL 2019 CL 97). Learned counsel assailed that reliance placed by the learned DCIR as well as the CIR(A), on the provisions contained in section 2(37) of the Act is misplaced because it is provided therein that 'tax fraud' means knowingly, dishonestly or fraudulently and without any law full excuse (burden of proof of which excuse shall be upon the accused) shall amount to the commission of tax fraud, if accused does any act or causes to do any act or omits to take any action or causes the omission to take any action in contravention of duties or obligations imposed under the Sales Tax Act, 1990 or the Rules made thereunder with the intention of overstate the entitlement to the tax credit or tax fraud to cause loss of tax. He has maintained that none of the ingredients constituting tax fraud as defined above has been shown to exist by 'the department.
In support of his contention, reliance was placed on (PTCL 2004 CL 1). Conversely, when the learned DR confronted with the tax situation cited supra, in counter arguments, she has assailed the case on similar grounds and charges as leveled 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 her and fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.
However, learned DR contended that since the instant case is a case of tax fraud therefore, no time limitation for issuance of show cause notice would run hence, the impugned show cause notice cannot be treated as time barred under section 11(5) of the Act.
4. We have gone through the relevant case record, duly weighed written as well as verbal arguments of both rival parties and have carefully examined factual as well as legal infirmities and improprieties arising out of the impugned orders and after adjudication at length, we have no hesitation to conclude this appeal case in a way given in the following paragraphs.
5. There is considerable merit in the contentions raised by learned counsel of the appellant regarding time limitation for issuance of show cause notice. The impugned sales tax liability for December, 2006 to May, 2009 is found hopelessly barred by time for which show cause notice having been issued on 03-05-2016 after expiry of statutory limitation of five years. There are clear cut provisions as embodied in section 11(5) of the Sales Tax Act, 1990 that no order shall be made by an Officer of Inland Revenue after expiry of five years and no liability as to sales tax can be adjudged under section 11(3) of the Act unless a notice to show cause to the person in default is given within five years of the relevant date. When a period is provided by a special statute, then any proceedings or actions taken under the provisions of special any doubt that once time prescribed for doing act by an executive statute, has to be taken within the stipulated period. There is hardly authority expires, the taxpayer is clothed with vested right of escapement of assessment. The show cause notice issued on 03-05- 2016, is hopelessly barred by statuary time limitation as the same was issued after the prescribed time limit of five years under section 11(5) of the Act and the result is that like in the suit for recovery of money, after lapse of time prescribed by law of limitation, the intended recovery has become unenforceable. it is trite law that where an executive authority exercises its jurisdiction after the expiry of the period provided in a statute, such exercise of jurisdiction, without any iota of doubt is illegal and ab initio void.
6. The phrase "no order shall be made by an Officer of Inland Revenue unless a notice to show cause notice is given within five years, of the relevant date" conveys the intention of the legislature that issuance of show cause notice, within five years, is a mandatory requirement for an action under section 11(3) of the Act and the term 'shall' used in sub-section (5) of section 11 ibid makes the compliance of provision of law mandatory and there is no escape to it and once limitation had started to run and had come to ail end, the taxpayer had acquired a vested right of escapement of assessment by lapse of time. It is now well-settled law that when the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a taxpayer thereby creating certainty that after its expiry, even if there was a good case for creation of liability he will not be dragged in. The judgment of Apex Court of Pakistan in case of "Federation of Pakistan though Secretary, Finance, Islamabad and 4 others vs. M/s. Ibrahim Textile Mills Ltd and others" reported as (PTCL 1993 CL 532) is also very relevant to the subject matter whose extract of relevance is given as follows:-- "The cardinal principle of law is to be considered for the recovery of short levied duties.-- that all are equal before law whether Citizen or State.
(II) secondly, if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Courts.
(2) thirdly, that while Construing a financial statute, its terms are strictly to be followed."
7. This legal position is also enunciated in the case of "M/s. Joyla Sadat Cotton Industries vs. Collector of Customs" by the Hon'ble High Court, Lahore reported as (PTCL 2008 CL 365). The relevant extract therefrom being reproduced as under:-- "We, therefore, observe that instant matter involves the controversy, which is governed under the provisions of section 36(2) of the Sales Tax Act, 1990. Such action has to be taken within the period, prescribed by law. Re- opening the case of the petitioner, after the prescribed period of limitation, is not justified. The phrase "shall be served with a notice, within three years of the relevant date" conveys the intention of the legislature that show cause notice and issuance of the same, within three years, is a mandatory requirement for an action under section 36(2) of the Act of 1990. The term 'shall' used in sub-section (2) ibid makes the compliance of provision of law mandatory and there is no escape to it."
8. Before concluding the case, it is worth to glance at the provisions of section 2(37) of the Act defining "tax fraud". For the purpose of controversy in hand "tax fraud" means that the alleged person should have done any act knowingly, dishonestly or fraudulently and without any lawful excuse. Reverting to the facts of the instant case, there is not an iota of evidence whatsoever, where from it could be deduced that the appellant has knowingly or H dishonestly or fraudulently committed tax fraud by claiming input tax adjustment against the invoices issued by the alleged suppliers. We are convinced that no case of any tax fraud had been made out whereby the burden of proof can be shifted to the appellant/buyer and entire edifice has been built to hold the appellant as fraudulent, on conjectures and surmises and whimsical inference has been drawn against the appellant on the so-called set of facts. On the other hand, record proves that there was ample justification with the appellant to claim adjustment of input tax. Such as all the suppliers were duly registered with FBR and were operative persons at the time of purchases and their status was also active as per FBR Website and too they were regularly filing their monthly sales tax returns and summaries thereof.
9. Merely invoking of provision of section 2(37) of the Act do not make the case of tax fraud unless firstly, those invoices against which input tax is being claimed by the buyer are specifically declared 'fake' through speaking order, secondly, invoices have 'direct nexus' with subsequent suspension and blacklisting of the supplier and thirdly, charge of 'collusion' of the buyer with his suppliers to claim input tax credit by way of fake invoices is established. Admittedly, invoices in question had no direct nexus with the subsequent suspension & blacklisting of the alleged suppliers and too neither charge of fake invoices was established against the appellant nor the charge of 'collusion' of the appellant with his suppliers to evade sales tax by way of fake invoices was levelled nor even the department could prove and bring on record any evidence for collusion of the appellant with his suppliers for the same. To prove these facts, burden is upon the revenue department. Not by confronting merely that supplier was suspended/blacklisted subsequently, initial burden, before shifting upon the buyer, is to be discharged by the revenue, as also held by the Hon'ble Sindh High Court, Karachi in case of "M/s. Al-Hilal Motors Stores and another vs. Collector Sales Tax and Central Excise (East) and another" reported as (PTCL 2004 CL 1), relevant excerpt of which is reproduced hereunder:-- "The learned two forums below have misdirected in placing the burden of proof on the appellant 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 assessee, knowingly, dishonestly or fraudulently and without any lawful excuse has done any act 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 understating the tax liability or 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."
10. In view of what has been discussed above, particularly in the light of law and the principles laid by the superior courts in various judgments as referred supra, impugned show cause notice is declared barred by time limitation and consequent orders passed by both the authorities below in pursuance thereto also are declared to be illegal, ab initio void, without lawful authority and thus are hereby set aside.
11. The instant appeal filed by the taxpayer is accepted and disposed of in the manners as indicated above.