SHAHID MASOOD MANZAR CHAIRMA N.---- The instant appeal has been filed by the Appellant under section 46 of the Sales Tax Act, 1990 assailing the impugned Order-in-Appeal No.130 dated 01.03.2019, passed by the learned CIR(A), Multan on the following grounds: 1) That the learned CIR (Appeals) was not justified to confirm the case without any inquiry and record demanded by the appellant, which was otherwise not maintainable in the eye of law. That the learned CIR (Appeals) did not act judicially rather transgressed his jurisdiction while giving directions to proceed the impugned order are hereby annulled that proper opportunity of hearing be provided And after examining the record, the issue be thrashed out properly , which clearly depicts that the learned CIR (Appeals) was divested of his powers to confirm the case.
2) There is not concept in Sales Tax Act, 1990 of flying invoices. That the impugned show-cause notice is defective and deficient and subsequently adjudication order based on non-speaking and non-judicial but also perfunctory order based on non-reading of relevant provisions of law and misreading of the documents available on record.
3) That the impugned adjudication order does not refer any reasoning for the rejection of the contentions raised by the appellant in its grounds and at the most, the impugned order apparently seem a clerical and verbatim reproduction of the show-cause notice without applying independent judicious mind. The impugned order proceeds on palpably flawed construction of the law and facts applicable to the instant case and it has failed to advert to the true construction of the entire circumstances affecting the instant case. It is now settled law that any order which does not contain substantial reasons and does show that it is passed on objective considerations shall always be treated as an illegal and void order .
That the impugned show-cause notice proposing recovery of sales tax under sectio n 48 of the Act and consequent adjudication order adjudging sales tax liability under sections 33 and 34 of the Act is illegal, unlawful and without jurisdiction as in case of any evasion of sales tax, recovery can only be adjudge d under section 11(3) of the Act however , any amount adjudged through a proper legal order there under can be recovered under section 48 of the Act. Recovery of sales tax can always be adjudged after adhering due process of adjudication under section 11(3) of the Act, where after, the amount of sales tax so adjudged can be recovered unde r section 48 ibid and in no case, recovery can be made without due process of adjudication under section 11(3) of the Act directly by invoking provisions of section 48 ibid. 5) That the appellant was neither asked to provide the relevant documents and records during the course of adjudication nor he was served with a single notice intimating production of records nor was his explanation sought on any aspect pertinent to subject issues however , the appellant have all the relevant documents which be produced even at this appellate stage for satisfaction of this Hon'ble Court.
6) That the learned adjudicating authority has imposed penalty and default surcharge under sections 33 and 34 of the act but neither specified amount of penalty and default surcharge nor the exten t of percentage of penalty in the impugned show-cause notice. Thus, penalty and default surcharge imposed against' the appellant is otherwise not recoverable with the said specification until and unless a lamp-sum amount or percentage thereof given in its subsection is not confronted in the show-cause notice. It simply means that he did not apply his judicial mind while imposing penalty and default surcharge which rendered its whole exercise of adjudication as illegal and unlawful.
7) Reported judgment 2019 PTD 257 (Lahore High Court) as Under:- "----73, 3, 8A & 7----Sales tax liability , determination of ---- input tax adjustment---Sales tax transaction not admissible---Blacklisted suppliers----Blacklisted of suppliers subsequent to transaction with taxpayers- -;Scope---Once blacklisting order was set aside by Appellate Tribunal, the same could not be pressed into service and subsequent blacklisting did, not invalidate invoices issued at a time when a supplier was active and duly registered----Once it was established that a supplier was not blacklisted, then there existed no justification to deny input tax adjustment against invoices issued by such supplier ."
8) that the appellant reserve the right to alter, amends, change or take the additional grounds at the time of hearing of this appeal.
2. Briefly stated the facts as narrated in the impugned order are that the registered person claimed/adjusted inadmissible input tax against fake/ flying invoices issued by blacklisted/ suspende d suppliers, in violation of 2(37), 3, 3(1A) ,6, 7, 8, 8A, 21, 22, 23, 26 and 73 of the Sales Tax Act, 1991 and was called upon to show-cause under section 11(3) of the Sales Tax Act, 1990 as to why evaded amount of tax amounting to Rs.39,476,839/- may not be recovered along with penalty and default surcharge under Sales Tax Act, 1990. The taxpayer responded to the show-cause notice by filing certain docu ments and details. The ACIR passed Order-in-Original No.53/2018-19 dated 30.08.2018 wherein the contention of the taxpayer was partially accepted. However , taxpayer was directed to deposit sales tax amounting to Rs.16,010,008 along with default surcharge and penalty amounting to Rs.800,500/-.
Being aggrieved the taxpayer filed appeal before the learned CIR(A) who vide his order dated 01.03.2019 confirmed the treatment meted out by the ACIR, hence the instant 2nd appeal by the taxpayer before the ATIR.
4. Both the parties have been heard and relevant orders perused.
5. The learned counsel of the taxpayer contended that the impugned recovery of adjusted amount of input tax on the charge of "registration suspended" is without any lawful ground as recovery against invoices of a person whose registration is suspended can be affected upon his ultimate blacklisting by the Commissioner IR after adhering due process of law under section 21(3) of the Act and the rules made there under and after due final order for such action as provided under law. It was argued that suspension of registration is an interim order of the Commissioner
(IR) for the sake of 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 blacklisting of registered person as provided under section 21(3) of the Act. He averred at the bar that when law specified a particular manner and procedure then it is obligatory for the functionary of the state to adhere to the same and comply with it in all respects and any negligence, failure or omission to do so, invalidates the proceedings on accoun t of which whole superstructure raised en such defective foundation automatically crumbles dawn. He emphasized that a person cannot be penalized and impeded with undue and premature tax liability merely on the basis of an interim order like the suspension one until and unless, it is eventually acted upon in the form of final blacklisting and recovery of sales tax thereof is not properly adjudged through an appealable order , no recovery could be made. He argued that inadmissibility of input tax against invoices of suspended units 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. Further argued that the provisions of section 21(3) of the Act are very much clear in its original footing s that, sales tax refund or input tax credit can be recovered back against invoices of a person upon his blacklisting but no such provision exist therein providing such action upon suspension of registration therefore, the whole exercise of adjudication for demanding sales tax from the respondent against invoices of a person whose registration was suspended yet not finally blacklisted by the IR, Department, therefore, it stands premature, unwarranted and nullity in the eyes of law .
6. The learned AR submitted that in order to provide safe guard to the property and rights of a citizen as envisaged in the Constitution of Pakistan, 1973, the legislation has consciously made a registered person while receiving a taxable supply obligatory to have knowledge or to have any reasonable grounds to suspect at the time of making payment of sales tax to the supplier that in chain of supply , certain tax will go unpaid as envisaged under section 8A of the Sales Tax Act, 1990. The provisions of section 8A simply required that the buyer should have the "knowledge" and "reasonable grounds" to suspect that the supplies will not eventually deposit the sales tax in the national exchequer paid by him and in order to attract the provisions of section 8A of the Act, initial burden lies on the department to establish that the taxpayer had prior "knowledge" and "reasonable grounds" to suspect the supplier that sales tax paid to him shall be remained unpaid in its eventuality and then proceed against the taxpayer .
7. As far as, violation of section 8(1)(d) of the Act is concerned, the learned AR of the taxpayer contended that the provisions of section 8(1)(d) of the Act can only be invoked in cases where charge of "collusion" or "tax fraud" has been levelled and established by the department as the said provision of disentitles a registered person from deducting or claiming input tax adjustment or credit made on the strength of a fake invoices" whereas in its order- in-original word used as "flying invoices" which is against the law. He submitted that the words "fake invoice" has neither collectively been defined in the Sales Tax Act, 1990 nor distinct and individual meanings of each word "flying" and "invoice" has been given therein nor any explanation has been enunciated in the rules made thereunder nor any definition of this expression is provided in defining clauses as given in section 2 of the Act. In the absence of the generally or technical definition by the legislature of any word or particular connotations appearing in the Act or the Rules framed there under or of any judicial interpretation of that word with reference to the same statute or any other statute in pari materia, one has to resort to the ,dictionary meaning of that word because reference to standard dictionaries can be the sole assistance in assigning meaning of that word or words.
It was argued that any invoice duly issue d by a registered supplier cannot be purported to be a fake documents, once it is established that the same is duly incorporated in sales shown by the supplier in his summary statement and also declared in his sales tax monthly return for the period in question particularly in the cases where its payment is also transacted as prescribed under the Act. Conversely , if a registered person holds a tax invoice which is not incorporated in the suppliers records or in its respect payment is also made clandestinely , it can be said that such person is making a fake business transactions. Any invoice that evidences are fake, fraudulent or sham transaction is known as a "fake invoice" and any distortion in taxable supply tainted with "tax fraud" or "collusion" between buyer and seller renders that tax invoice defective and fake. It is a well established principle of law that a party making an allegation must bring material evidences to prove the same but no evidence of tax evasion, issuing of fake invoices or any other commission of tax fraud or is put forth on record to substantiate the allegations levelled against the respondent and in absence of which, impugned show-cause notice as well as consequent orders stand illegal and void ab initio. For claiming adjustment of input tax by a taxpayer under clauses
(1) of subsection (2) of section 7 of the Act, he should hold a taxable invoice duly issued duly issued by his supplier under section 23 of the Act and the claimant should have paid the amount of the goods including tax show in the invoice. The department has not been able to place on record any evidence by which it can be inferred that the invoices issued by the supplier were flying. Any action which is based upon no evidence is not permitted by any law of the land. The respondent to do with the act and commission of his suppliers under any provisions of the Act neither the respondent is obliged under any other law to defend the acts or omissions of his suppliers. The respondent, who has admittedly paid the input tax covered by the invoices, cannot be denied the statutory right of claiming it adjustment. In a nut shell, neither charge of "tax fraud" was established against the respondent nor the charge of "collusion" of the respondent with his suppliers to evade sales tax by way of flying invoices we levelled and established nor even the departme nt could prove and bring on record any evidence for collusion of the respondent with his suppliers for the same without which, the provision of section 8(1)(d) are not attracted in the instant case and thus, the whole proceedings are infested with inherent infirmities and are liable to be set aside.
Reliance is placed on the judgment 2014 PTD (T rib.) 558 and 2018 PTD 986 (Lahore High Court).
8. The learned AR of the taxpayer submitt ed that the vital fact in the instant case cannot be ignored that at the time of making transactions, the alleged supp liers were enjoying their status as an "operative persons" having normal behavior and upon their subsequent inclusion in the list of suspended and blacklisted units in the surpassing years cannot be made effective retrospectively . Since, all the stakeholders were very much operative at e-portal of FBR showing hundred percent compliance level at the time of transactions and upon subsequent default of the suppliers, if it is allowed to department to recover the amount of input tax paid by the buyer then endless litigation will start and crush the weekend wheal of economy of the country already running in fits and starts. It is a well- settled principle of law that if blacklisting or suspension of registration of a supplier is effected subsequent to a period in which purchases and bank payments were transacted could not be made a tool to deprive of the buyer of a valuable right accrued in his favor prior to such blacklisting or suspension of registration of any supplier die to subsequent default whatsoever on his part.
9. In view of what has been discussed hereinabove and on a careful consideration of the pros and cons of the controversy between the parties and in-depth consideration of the submissions, particularly in the light of law and judgments quoted supra, the instant appeal filed by the taxpayer is accepted and impugned show-cause notice and consequent order are declared to be illegal, ab initio void and hereby set aside. Resultantly , C the appeal filed by the registered person stands accepted.