ZAHID SIKANDAR, JUDICIAL MEMBER.----The titled second appeal has been preferred under section 46 of Sales Tax Act, 1990 (herein after referred as 'The Act') by the department against the Sales Tax Order-in-Appeal No.211 dated 07.03.2014 passed by the Learned Commissioner Appeals wherein the learned Commissioner (Appeals) modified the orders dated 29.10.2013 passed by the ACIR by way of partially accepting the appeal of the taxpayer and setting aside the recovery of sales tax amount of Rs.620,341/-, Rs.418,149/- and Rs.904,316/- on the issues of mis-match of amount of supplies value, buyers registered other than "five zero-rated sectors" and purchases not shown by the buyers in their sales tax returns.
2. Brief facts of the case are that during scrutiny of sales tax return for the tax periods 07/2011 to 02/2013, as pointed out by CREST the assessing officer observed certain discrepancies with regards to zero rated supplies of textile goods to the registered persons. Details of the alleged discrepancies observed are enumerated in the orders al the authorities below as well as in the show-cause notice.
3. The taxpayer was communicated with the noted discrepancies and was advised vide letter No. 2424 dated 03.04.2013 to avail amnesty by discharging the outstanding liability in terms of SRO 179(1)/2013 dated 07.03.2013 @ 2% of the value of such supplies which was otherwise payable @ 16%, 6%, 4% or 5% as the case may be under section 3 of the Act read with SRO 283(1)/2011 dated 01.04.2011 as amended vide SRO 1058(1)/2011 dated 23.11.2011 and SRO 1125(1)/2011 dated 31.12.2011. The taxpayer did not avail the amnesty notified vide SRO 179(1)/2013 and did not deposit any sales tax in this regard. Resultantly, show-cause notice, dated 07.05.2013 was served upon the taxpayer alleging violation of certain provisions of Sales Tax Act, 1990 and different SROs to the effect as to why sales tax amounting to Rs.7,321,036/- along with default surcharge and penalty might not be assessed and recovered from the company. The said show-cause notice culminated into sales tax Order-in-Original No..44 dated 29.10.2013 and the amount of Rs.5,998,554/- was held recoverable along with default surcharge and penalty from the taxpayer company against various allegations.
4. Feeling aggrieved by the order of the ACIR, the taxpayer company filed an appeal under section 45B of the Act before the Commissioner (Appeals) with respect to recovery of sales tax. The Learned Commissioner (Appeals) after hearing the matter vide order dated 07.03.2014 partially accepted the appeal. Hence, this second appeal has been filed by the department against the order passed by the learned CIR(A) to the extent of its respective grievance.
5. The Learned DR argued that the learned commissioner (Appeals) was not justified to accept the zero rating supplies of textile goods to those units whose supplies value did not match. Moreover, the taxpayer has made supplies to units who are registered in sector other than "five zero rated sectors" and the buyers did not show any purchases in their sales tax returns. The Learned DR further submitted that the CIR(A) could not entertain the documents which were not produced during adjudication.
6. Conversely, the learned AR supported the order of the CIR(A) with regards to the issues agitated before this court by the department. He submitted that the respondent taxpayer company made genuine supplies to all the buyers and the payments were fully received from the buyer units complying with the provisions of section 73 of the Act. The learned AR maintained that the allegation regarding the supplies made to the units registered other than "five zero-rated sectors" is not correct. He further argued that transactions are genuine against duly received payments.
Sales invoices are in the name of buyer units duly registered with the department and if the said buyers did not show purchases in their sales tax returns, the appellant taxpayer could not be held responsible.
7. We have heard the submissions made by the representatives of the rival parties and have also perused the impugned order passed by the CIR(A) as well as the order passed by the ACIR.
8. Initially, the show-cause notice was issued to the taxpayer for the recovery of sales tax of Rs.7,321,036/- along with default surcharge and penalty against various allegations. Details of the buyer units along with sales tax involved as per the discrepancies observed are duly mentioned in the show-cause notice and. in both the orders of the authorities below therefore it is not necessary to reproduce them again in this order. The ACIR after hearing the matter held the amount of Rs.5,998,554/- in total recoverable along with default surcharge and penalty from the taxpayer company against different allegations.
9. In first appeal, one of the issues raised before CIR(A) pertained to recovery of Rs.4,055,779/- against the supplies made to M/s. Shaheer industries, M/s. A.S Enterprises and M/s, Sheikh Corporation, during the tax period as enumerated in the show cause notice as well as the order of ACIR. The learned CIR(A) on the admission of the DR regarding the wrong rate of tax applied reduced the tax rate from 17% to 5% in the case of M/s A.S Enterprises during, the month of 12/2011 under the provisions of SRO 283(1)/2011 and reduced the recovery from Rs.1,804,429/- to Rs.563884/- and the total demand was reduced from Rs.4,055,779/- to Rs.2,810,249/- against the above mentioned buyers. Neither this reduction of recovery was challenged in the grounds of appeal by the department nor agitated by the learned DR during the proceedings by way of attacking the reduction on wrong application of rate of sales tax. Moreover, this reduction was made in the recovery of sales tax by the CIR(A) as per provisions of SRO 283(1)/2011 and on the admission on the part of DR with regards to the wrong applicability of tax rate by the ACIR. Hence this issue pertaining to reduction of sales, tax recovery does not require any adjudication by this bench.
10. We will first take up the legal objection of the department whether the learned CIR(A) could not entertain the documents not provided at the adjudication stage.
11. Under the provisions of Sales Tax Act, 1990 appeal against the order passed by the Officer Inland Revenue can be filed before Commissioner Inland Revenue (Appeals) under section 45B. The question whether the CIR(A) can entertain or examine documents which were not provided at the time of adjudication is to be seen and dealt with under the provision of section 45B subsection (3).
For the purpose of ready reference the said provision 45B (3) is reproduced below: "45B (3): In deciding an appeal, the [Commissioner Inland Revenue] (Appeals) may make such further inquiry as may be necessary provided that he shall not remand the case for de novo consideration."
The above referred provision of the Act empowers the CIR(A) to make further inquiry for the 'purpose of deciding appeal provided that he does not remand the case. It is an elementary rule of construction that the court called upon to interpret any provision of statute needs to ascertain tile intention of law-makers from the words used which may receive their literal, natural and ordinary meaning where the words are not defined in the statute. This is known as 'rule of litralegis'. Applying the aforesaid rule of construction, the use of word 'may' in the above referred provision was not accidental but a deliberate and conscious insertion by the law makers who were aware about the implication of word 'may'. The Hon'ble Supreme Court of Pakistan in a case titled Muhammad Sadiq v. University of Sindh reported as PLD 1996 SC 182 held that the cystomary usage of terms of art 'may' and 'shall' when, they appear in a statute is that 'may' involves a choice and 'shall' an order. The deliberate use of word 'may' and phrase 'as may be necessary' in section 45B(3) of the Act suggests that the legislature has left it on the discretion of the Commissioner (Appeals) to decide with Application of mind whether to make any inquiry or not varying from case to case as deemed necessary with a condition that the commissioner (Appeals) shall not remand the case for de novo consideration.
12. The interpretation of the word 'inquiry' has been the subject matter of various judgments given by the apex courts. The Hon'ble Islamabad High Court in a case titled as Ashfaq Ahmad Khan v.
PTCL reported in PLD 2016 Islamabad 112 elaborated the meaning on the word 'inquiry'. It was observed by the apex Court that the term 'inquiry' is synonymous to word 'examination' according to Webster's New World Dictionary (Third Edition) the word 'inquiry' means (1) the act of inquiring
(2) an investigation or examination and according to Chambers 21st Century Dictionary (Revised Edition), term 'Inquiry' means an act or the process of asking for information, an investigation especially a formal one.
13. The Indian High Court in a case Chandra Nath Bhattacharjee v. State of West Bengal and others citation: (1991) 1 CALLT 72 HC Inquiry' means after a fair inquiry into the truth of the alleged facts by giving due notice and by taking and fairly considering the evidence (Judicial Dictionary of Words and Phrases, Vol. 2, 3rd Edition, 1952). Usual literary meaning of 'inquiry' is question, query or request for information (ibid, Vol. 21 A, 1960). According to the above authorities giving of notice and considering fairly the evidence is 'Inquiry'.
14. The word 'inquiry' from the definitions and judgments referred above clearly stipulates that taking evidence is one of the ingredients of an act of inquiry to find out the real truth of the matter.
In the section 45B(3), the phrase 'may make such further inquiry' has been inserted by the legislature. The word 'further' in this provision means that the Commissioner (Appeals) can inquire into matter in furtherance of any previous inquiry already held and that denotes the previous inquiry held by the taxation officer at the stage of adjudication. Hence, the plain reading of the provision 45B(3) leaves no ambiguity that the Commissioner (Appeals) Inland Revenue is empowered to make any inquiry in furtherance of any previous inquiry held by the taxation officer at the adjudication stage if after due consideration and application of mind the CIR(A) deemed it appropriate and necessary. The Commissioner (Appeals) may entertain or take evidence produced before him for the purpose of inquiry to find out the truth. However, the CIR(A) after making such inquiry is debarred from remanding the matter to the lower authority for de novo consideration and is required to pass the order under section 45B (2).
15. With the above stated reasons, we feel no hesitation to hold that the Commissioner (Appeals)
Inland Revenue may entertain document or take evidence for the purpose of inquiry at the appellate stage if after due consideration and applying judicial mind he deems it appropriate and necessary. Hence, the legal objection raised by the learned DR is turned down.
16. The department has challenged the setting aside of recovery of sales tax amounting to Rs.620,341/-, Rs.418,149/-and Rs.904,316/- by the CIR(A) on the issues of mis-match of amount of supplies value, buyers registered other than "five zero-rated sectors" and purchases not shown by the buyers in their sales tax returns. We will deal with these issues in seriatim.
Amounts not matched (ANM):
17. The issue of amounts not matched involves tax amount of Rs.620,341/- in total recoverable from M/s Kohinoor Mills, M/s Ahmad Fine Textile, M/s Azgard Nine Ltd., M/s Diamon Fabrics, M/s Fatima Enterprises Ltd. M/s Fazal Cloth Mills Ltd., M/s Gulshan Weaving Mills, M/s Kay and Emm, M/s Rana Textile, M/s Samine Textile and M/s Rajwani Denim Ltd. It has been noted that initially many other companies were given show-cause notice on this allegation but after adjudication show-cause notice was either vacated upto the extent of the rest of the companies on account of charge levelled not being established or the amounts not matched were reconciled by the taxpayer. The taxpayer filed appeal before the CIR(A) with regards to recovery of the above said sales tax amount who after being satisfied with the documents provided set aside the recovery of Rs.620,341/. The taxpayer duly provided copies of payment proofs, sales tax return, delivery notes and outward gate passes and undertakings given by the buyers. The veracity of these documents were not challenged before the CIR(A) as well as before this court. Rather the only objection taken by the representatives of the department during the first appeal as well as before this court is that the taxpayer did not submit these documents during the adjudication stage. The learned AR strenuously pressed that all the financial documents including invoices, bank statements, cross cheques, sales tax returns, proofs of delivery of goods were submitted before the authority at the adjudication stage but astonishingly similar charges were dropped regarding other companies and the above said recovery was maintained. We have given an anxious view on both the orders and find the contentions of the appellant correct. Even otherwise the answer to this objection has already been given in the preceding paras. In view of above, the order of the learned CIR(A) with regards to setting aside of recovery of Rs.620,341/- is upheld.
Five Zero-rated sectors:
18. The next ground of the CIR in this appeal is that the respondent taxpayer has made supplies to buyer units namely M/s Marks (Pvt.) Ltd. and M/s Shahnaur Traders which were registered in the sector other than "five zero-rated sectors". An amount of Rs.418,149/- was held recoverable by the ACIR from the taxpayer on this account. The taxpayer provided all the documents including the online verification report to the CIR(A) regarding the operative and active status of the buyer units and confirming the registration status of the above referred buyer units as manufacturer/exporter/importer with the department. Hence, the taxpayer was entitled for the benefit of the Notification SRO 1125(1)/2011 dated 31.12.2011. The department neither at the appellate stage before CIR(A) nor before this court provided any document stating the otherwise position.
We have further noted that the DR also admitted the fact before the CIR(A) that the stance of the taxpayer is supported by documentary evidence. In such an eventuality, no exception can be taken from the order passed by the CIR(A) and the setting aside of recovery of sales tax amount of Rs.418,149/- against the allegation of supplies to buyer units not registered in "five zero rated sectors" is upheld.
Purchases not shown (PNS):
19. Another issue raised by the department in this second appeal is the recovery of sales tax amounting to Rs.904,316/- against the allegation that the buyers namely M/s V income, M/s Ahmed Fine Textile, M/s Azgard Nine Ltd. M/s Fateh Muhammad and sons, M/s Fazal Rehman Fabrics, M/s M.I Sports, M/s Cotton Art, M/s Forward Sports; M/s Samin Textile, M/s Suntex Gloves, M/s US Denium, M/s Rajwani Denim Ind. Ltd., M/s Salman Textile and M/s Waqas Ent. did not show any purchases against the supplies of the taxpayer in their sales tax returns. The stance of the taxpayer in the instant issue is similar to the one in the previous issues that the taxpayer duly made supplies to all these buyers and possesses and has provided all the relevant documents stated above to the CIR(A) required under the law to substantiate his assertion of genuineness of supplies.
The AR supported the order and submitted that the learned CIR(A) after being satisfied with the documents provided rightly set aside the recovery of sales tax against this allegation. Moreover, on query by this court that how the supplier/respondent can be held responsible for the fault of purchasers, once the supplier taxpayer substantiates his claim of genuineness of supplies with all the relevant documents including sales tax returns, payment proofs complying with the provisions of section 73, copies of invoices in the name of registered buyers, outward gate passes, undertakings on behalf of the registered buyers etc, the learned DR could not satisfy this court with any plausible answer. It has been further noted that the departmental representative neither before CIR(A) nor before this court objected on the veracity of the documents provided by the taxpayer but the only submission made by the DR that since the purchasers did not show these purchases from the taxpayer in their sales tax returns therefore, the ACIR was right to impose, tax on the taxpayer as the supplies by the respondent are not verified. We are afraid that the stance of the department in this regard is misconceived. The taxpayer company cannot be burdened for the default of the buyer in failing to declare the purchases in the sales tax return. Once the transaction is complete fulfilling and complying with all the provisions of law, the supplier cannot be penalized for the default and failure of another person. The Hon'ble Lahore High Court in a case title as D.G Khan Cement v. FOP reported in PLD 2013 Lah. 693 observed as under: "It is assumed, unless proven otherwise, that there is free competition in the market. Buyers and sellers in a market are separate, unrelated and independent players, transacting with each other at arm's length. The buyer has no control over the supplier. Once payment is made to the buyer through banking channel, as provided under the Act, the buyer has no control over the supplier.
Buyer has no means to police the supplier to ensure that the payment made is also duly deposited in the government exchequer. Supplier is not the puppet of the buyer and does not dance to his tune. Any such expectation or obligation cast upon the buyer in a market where there is free and fair competition defies reasonability and logic".
Similarly, this principle is applied vice versa as well. The supplier does not have control over the buyer and no means to Police the buyer to ensure that the buyer shows purchases in the sales tax return. In the instant case, the supplier/respondent substantiates his claim of genuineness of supplies with all the relevant documents including sales tax returns, payment proofs complying with the provisions of section 73, copies of invoices in the name of registered buyers, outward gate passes, undertakings on behalf of the registered buyers etc, and no case of fraud, collusion or nexus between seller and buyer was made out and established by the department therefore, the CIR(A) has rightly set aside the recovery of Rs. 904,316/- on the issue of purchases not shown by the buyers against the supplies made by the respondent taxpayer.
20. In view of above stated reasons, the Order-in-Appeal No.211 dated 7-3-3014 passed by CIR(A) is upheld and the instant second appeal filed by the department is hereby dismissed being devoid of