SHAHID MASOOD MANZAR, CHAIRMAN .----T itled appeal has been filed under section 46 of the Act at the instance of the taxpayer , assailing Orde r-in-Appeal No. 444 of 2019 dated 22-10-2019, passed by the learned CIR(A), Faisalabad whereby he while rejecting the appeal of the taxpayer has upheld findings recorded by the learned Of ficer of Inland Revenue, Faisalabad.
2. Brief facts giving rise to the filing of the present appeal are that appellant is engaged in manufacturing and supply of greige cloth on job basis against conversion/weaving charges. During scrutiny of electricity bills and income tax returns, it was observed that the appellant is not only liable to be registered but also liable to pay sales tax on the basis of sales declared in the income tax returns for the financial years 2014, 2015, 2016 and 2017.
Resultantly , a show-cause notice dated 25-10-2018 was issued asking the appellant as to why sales tax of Rs.
916,227/- may not be recovered under section 11(3) of the Act and as to penalty under section 33(13) ibid may not be imposed in violation of sections 3, 6, 7, 11, 14, 22, 23 and 26 read with 2(5AB), 2(25), 2(14) and 2(37) of the Act along with default surcharge under section 34(1) ibid. During adjudication proceedings, the appellant duly contested the charges levelled against him but the learned IRO has adjudged recovery of sales tax amounting to Rs. 916,227/- along with hundred percent penalty and default surcharge vide order No. 01/2019 dated 02-04-2019.
The appellant being aggrieved and dissatisfied by the treatment given at adjudication stage, assailed the said order by filing of appeal before the learned CIR(A) who dismissed the same vide order dated 22-10-2019. Hence, this further appeal filed before this Tribunal praying for setting aside the orders of the lower fora.
3. The learned counsel for the appellant has contended that the impugned order is erroneous in law and the same is based on misconceived facts. He agitated that the department has not produced any material to show that the said amount reflected in the income tax returns is in anyway linked with the taxable supplies or with any taxable activities or represent an amount on account of any business activity . Reliance was placed on (PTCL 2014 CL 262). Learned counsel stated that neither issue of 'Textile Industrial Notes' was primarily confronted in impugned show-cause notice nor the same was adjudicated in an adjudication order howev er, learned CIR(A) rejected the appeal on such charge therefore, order of learned CIR(A) is beyond the scope, stance and contents of show-cause notice and consequent adjudication order . Reliance in this regard was placed on the judgment of Hon'ble Supreme Court of Pakistan reported as (1987 SCMR 1840 ). He explains his view point by maintaining that 'Textile Industrial Notes' issued by an Official of Textile Sector were neither converted into law by any legislative body nor by the Federal Government nor even notified by the FBR. As such, said Textile Industrial Notes have no legal force. In order to strengthen the contentions, learned AR, has placed reliance on the judgments of the Hon'ble High Court, Lahore reported as (GST 2005 CL 73), (2005 PTD 72) and (2007 PTD 47). Learned AR assailed that there is no provision under the Sales Tax Act, 1990 and the rules made thereunder prescribe any procedure or formulae to levy and calculate liability of sales tax on the basis of consumption of electricity units. In support to his contention, he placed reliance on a reported judgment (2019 PTD (T rib.) 144 ).
4. On the other hand, the learned DR appearing on behalf of department although opposed the contentions of the learned AR but failed to put-forth any explanation to justify any deviation from the arguments/judgments advanced by the learned Advocate for the registered person however , simply supported the impugned orders of lower fora.
5. We have heard the learned representatives for both the parties and given our earnest consideration to the rival arguments and have also examined the record of the case in detail.
The contravention case has purely been made out merely on the basis of informati on obtained from the income tax returns of the appellant. The income tax record can be looked into for the purposes of conducting investigations and if any difference is detected by the detecting agency then it should be substantiated with solid and convincing material evidences as records relating to income tax cannot be made basis for creating sales tax liability against any registered person without any other corroborating material evidences for clandestine removal of goods or receipt of money consideration in the same vein. These documents relating to the income tax, in our view, cannot be taken as a valid evidence for the, purposes of sales tax. The reason is obvious. The income tax is always levied and collected on the basis of income but so far as the sales tax is concerned, it is always to be levied on the goods manufactured and sold by the manufacturer . In the instant case, department has not produced any material to show that the B said amount reflected in the income tax returns is in anyway linked with the taxable supplies or with any taxable activities or represent an amount on account of any business activity . Under section 3(1)(a) of the Act, sales tax is on sale and supply of goods which necessarily entails 'delivery of goods' or 'receipt of money consideration' and no corroborating evidence for any clandestine removal of goods or for receipts of money consideration has been provided by the department without which whole exercise for creating liability of sales tax on the basis of income tax returns remains illegal and of no legal effect. Reliance is placed on the judgment of ATIR, Lahore in case of "Messrs Siddique Enterprises, Faisala bad v. The CIRfA), Faisalabad and others" reported as (2013 PTD (T rib.) 2130 ). The relevant except of the said judgment is as under:- "Therefore, records relating to income tax cannot be made basis for creating sales tax liability against any registered person without any other corro borating material evidences for clandestine removal of goods or receipt of money consideration in the same vein because under the provisions of section 3 of the Act which is the charging section, the sales tax shall be charged, levied and paid on taxable supplies made in Pakistan by a registered person. in the course or furtherance of any taxable activity carried on by him and on the goods imported into Pakistan and in the present case, the learned DR has miserably been failed to bring forth any material evidence whatsoever to substantiate its allegation against the appellant. It is a well established principle of law that a party making an allegation must bring material evidences to prove the same and any action which is based upon no evidence is not permitted by any law of the land. The income tax record can be looked into for the purposes of conducting investigations and if any difference is detected by the detecting agency then it should be substantiated with solid and convincing material evide nces by comparing that information with the records maintained under Sales Tax Act, 1990. The department has not been able to produce any materia l to show that the said amount reflected in the income tax return is in anyway linked with the taxable supplies or with any taxable activities or represent an amount on account of any business activity . Supply of goods is a condition precedent for creating sales tax liability against the taxpayer and without establishing the same and linking nexus of figures shown in financial statement of a taxpayer with that of physical delivery of goods; no tax authority can be allowed to create liability of sales tax in a castle build in the air ."
To strengthen our opinion, there is no denying the fact that Textile Industrial Notes issued by an Official of Textile Sector were neither converted into law by any legislative body nor by the Federal Government nor even notified by the Federal Board of Revenue. As such, said Textile Industrial Notes have no legal force and sanctity having no embodiment in the Sales Tax Act, 1990. The impugned textile industrial notes provide only guideline for all stakeholders but have no legal significan ce having not been enacted into law in the Sales Tax Statute. The mere framing of the Textile Industrial Notes is insuf ficient until it is not reduced in the form of a statutory instrument. In this regard, reliance is placed on judgments of Hon'ble High Court, Lahore in cases of Messrs Mehmood and Company as reported as (2005 PTD 72 H.C. Lah) and Messrs Tauqir Ashraf & Co., Lahore as reported at (2007 PTD 47 H.C. Lah.) wherein it has been laid down; "An association of taxpayers has no role to play under the Sales Tax Act, 1990 nor any of the rules framed thereunder . It can certainly represent the interest of its members. However , in absence of any support from any law it cannot bind its members when it comes to payment of a levy, its rate or even the procedure of its collection. This is clearly discernable from the present scheme of the Sales Tax Act, 1990. It also means that compliance of most of the members of the association cannot upgrade the agreement to the status of a statutory instrument. The levy of tax, its rate and collection does not depend upon the will or agreement of some gentlemen who supposed to represent other taxpayers of their class. The agreement between the said association and the revenue as noted above, having never been converted into law through the process prescribed in that behalf no person could be forced to comply with the same. The plea that a person did for some time accepted the terms of an agreement and acted upon the same does not convert that agreement into a law ."
Further reliance is placed on the judgment of the Lahore High Court in the case of Messrs Crescent Re-rolling Mills reported as (GST 2005 CL 73 H. C. Lah) wherein the honourable High Court held:- "The minutes of the meeting between the Revenue and the Association of a class of taxpayers are neither a superior nor a subordinate legislation. In our taxation system, it is correct that legislature at time delegates its powers to the revenue wing of the government to make changes giving exemptions or altering the rate of levy or the procedure to collect it. The exercise of such power by the executive however is certainly conditional to the existence of a delegation in the superior legislation i.e. an act of the Parliament. In the case in hand, it was necessary to formally legalize the terms of the agreement either by an Act of the Parliament or if the existing law so permitted, by way of a subordinate legislation in the form of a notification. In absence of a delegated power and manifestation of that power through a notification or an amendment in the rules, the agreement between the Association and the Revenue was at best a promise to pay at a certain rate on the part of one party and to refrain from conducting audit by the other . That set of promise could very well be a gentle man's promise. However , it was not enforceable in law ."
In view of what has been dilated upon in the above paragraphs, impugned show-cause notice and consequent orders passed by the authorities below being devoid of any merits are hereby set aside.
6. Consequently , the instant appeal is accepted as prayed for and disposed of in the manners as indicated above.