SHAHID MASOOD MANZAR, CHAIRMAN. The instant appeal has been filed under section 46 of the Sales Tax Act, 1990 at the instance of registered person/taxpayer calling in question the impugned Order-in-Appeal No. 470 of 2019 dated 04-11-2020 passed by the learned CIR(A), Faisalabad on the following grounds:-
1. Inadmissible input tax against suspended and blacklisted persons.
1.1 That the department had already initiated recovery proceedings against the alleged supplier namely M/s. Al-Suboor Packages vide Sales Tax Order-in-Original No.16/2017 dated 09.02.2017. Now the same demand/liability on account of output tax invoices of the same supplier for the same period has been created against the appellant as well which resulted into double taxation which is not only contrary to the provisions of Sales Tax Laws but also against norms of natural justice.
Reliance is placed on (PTCL 2017) and (PTCL 2019 CL 78).
1.2 That suspension of registration of M/s. S.M. Traders on 06.02.2014 and M/s Aisha Traders on 18.03.2015 has never been converted into a blacklisting order within 90 days of basic hearing notice as per sub-rule b(ii) of rule 12 of the Sales Tax Rules, 2006 therefore, order for its suspension has become illegal and ab initio void having no effect of enforcement therefore, recovery of sales tax against their invoices has also become illegal and unlawful and all the subsequent proceedings carried out on its basis are also void ab initio, and unlawful. Reliance is placed on the judgment of a Division Bench of Hon'ble ATIR, Lahore reported as (2018 PTD (Trib.) 915) and (2019 PTD (Trib.) 120).
1.3. That the allegations against the appellant are frivolous and baseless because the appellant procured the alleged goods under coverage of proper sales tax invoices issued under section 23 of the Act as duly incorporated in suppliers' sales registers, sales tax returns, summary statements and due tax was also paid in its monthly sales tax returns for periods in question therefore, appellant has rightly claimed/received refund of input tax under section 10 of the Act.
1.4 That all the payments (where required) to the alleged suppliers have also been made through banking channel from the business bank account of the appellant as requisitioned under section 73 of the Act and no violation whatsoever has been committed therefore, input tax credit against invoices of such suppliers cannot be denied and sales tax refunded thereon cannot be recovered.
1.5 That the appellant has submitted all the relevant record/documents but the learned ACIR did not utter even a single word in this behalf and deliberately and intentionally ignored the same which rendered her whole exercise of adjudication illegal, void and nullity in the eyes of law. It is now well-settled law that any record/documents produced by a taxpayer during the course of adjudication proceedings either at the original stage or at the appellate, stage if not discussed and controverted and have gone unchallenged and unrebutted by the tax functionaries are itself amounts to admission of its legality and authenticity. Reliance is placed on the judgments of a Division Bench of Hon'ble ATIR, Lahore reported as (2015 PTD 16363(sic)) and (2017 PTD (Trib.) 70)
1.6 That as per sacred statute of book, liability to pay sales tax is primarily on the supplier under section 3(3)(a) of the Act and can only be extended to the buyer by a notification in the official gazette under section 3(A) ibid in case of supply of specific notified goods and no such notification was issued by the Federal Government as such defaulted amount has to be recovered from the defaulter instead of the buyer. This contention of the appellant is very much supported by judgments of Hon'ble ATIR, Lahore in cases reported as (2015 PTD (Trib.) 1174) and (2017 PTD (Trib.)
70).
1.7 That it is now well settled law mat subsequent blacklisted will not disentitle the buyer from his lawful right of input tax in respect of invoices issued when the supplier was a registered and active person unless, those invoices are specifically declared fake through speaking order and have direct nexus with blacklisting and admittedly, invoices in question had no direct nexus with the subsequent blacklisting of the alleged supplier. Reliance is placed on the judgments of Hon'ble Lahore High Court reported as (2015 PTD 2256), (2016 PTD 467), (2018 PTD 986), (2019 PTD 257) and (2019 PTD 298).
2. Non payment of further tax.
2.1 That it is worth mentioning here that the appellant has made no transactions with the alleged buyer namely M/s. SC Pakistan during the tax periods from September 2014 to November 2015 hence, charge of inadmissible input tax adjustment on the strength of his invoices is irrelevant and illegal.
2.2 That beyond any doubt, the appellant has made transactions with the registered persons only and accordingly only and accordingly declared sales vis-a-vis output tax thereon in his respective monthly sales tax returns for the periods in question and no further tax was chargeable thereon as in case of supplies made to registered persons, provisions of further tax under section 3(1A) of the Act are not attracted at all and this very fact can also be verified from the show-cause notice as well as from the sales tax returns of the appellant. Reliance is placed on (2019 PTD (Trib.) 56).
3. Purchases from irrelevant sector.
3.1 That demand of sales tax worth Rs.1,527,399/0 for the tax period of December 2014 against the invoices of Messrs Aisha Traders is duplicated as the same has also been made in observation No.01, it is not only tantamount to double taxation and double jeopardy but also reflects professional incompetence on the part of the audit.
3.2 that nature of business of appellant is table manufacturing like tags, badges, paper boxes useable as paking material which are mainly supplied to exporters of garments. Input tax paid on purchase of taxable goods is not hit by the provisions of section 8(1)(t) of the Act as neither any supply of exempt goods is existed on record nor the alleged goods are included in the negative list of items provided therein.
Nevertheless, the appellant craves his right to add any fresh ground(s) at the time of hearing besides placing any valid incriminating evidence/documents.
3. Briefly, the facts necessary for adjudication of the appeal at hand are that an audit of appellant's sales tax record for the tax periods from December 2013 to November 2015 was conducted and resultantly, certain discrepancies were pointed out by the learned ACIR, RTO, Faisalabad, on the basis of which appellant was called upon to show-cause notice dated 11-01-2019 under section 11(5) of the Act as to why sales tax worth Rs.5,197,315/- may not be recovered under section 11(2) of the Act along with penalty and default surcharge under section 33 and 34 ibid. The appellant was also charged with the violation of sections 8, 10, 22, 23, 26 and 73 of the Act. Consequently, the impugned assessm ent order dated 19-03-2019 was passed by the ACIR whereby an amount of Rs.
5,197,315/- along with default surcharge and penalty was ordered to be paid by the registered person. Being aggrieved, the taxpayer went in appeal before the learned CIR(A) and assailed the treatment meted out at assessm ent stage but he learned CIR(A) vide impugned order dated 04- 11-2019 dismissed the appeal. Now, the appellant has filed the second appeal before this Tribunal.
4. The learned counsel for the appellant has contended that the impugned order is erroneous in law and the same is based on misconceived facts. Learned AR further agitated that appellant at original adjudication stage, has submitted all the relevant record/documents i.e. input tax invoices, monthly sales tax returns and summary statements, payments proofs along with bank statements, computer profile of the suppliers, to prove genuineness of the alleged transactions as also admitted by the ACIR at Page Nos. 5 and 6 of its order but the same was deliberately ignored and was not discussed by her while passing the impugned order which rendered its whole exercise of adjudication illegal and void. On merits of the case, learned AR submitted that the appellant has procured the alleged goods under the coverage of proper sales tax invoices issued in terms of section 23 of the Sales Tax Act, 1990 duly incorporated in suppliers' sales registers and summary statements and his suppliers have duly discharged their sales tax liabilities under section 7 of the Act in their monthly sales tax returns for periods in. question, hence, appellant was legally entitled for adjustment of input tax under section 7 of the Act and too the alleged suppliers at the time of making transactions were operative/active and all the payments against those transactions were also made through banking channel as required under section 73 of the Act. In support of his contention, he placed reliance on the judgments of Hon'ble Lahore High Court reported as (2015 PTD 2256), (2016 PTD 467), (2018 PTD 986), (2019 PTD 257) and (2019 PTD 298). Learned counsel argued that the appellant has declared sales vis--vis output tax thereon in his respective monthly sales tax returns for the periods in question and no further tax was chargeable thereon as in case of supplies made to registered persons, provisions of further tax under section 3(1A) of the Act are not attracted at all particularly when all payments in its respect have been received through banking channel as required under section 73 of the Act. Reliance was placed on (2019 PTD (Trib.) 56). Learned AR lastly contended that nature of business of appellant is label manufacturing like tags, heat transfer labels, badges, etc which are mainly supplied to exporters of garments and the purchased items have been used by the appellant for manufacturing of the said taxable goods hence, input tax paid thereon was admissible for refund under law. Reliance was placed on (PLD 2007 SC 517 = 2007 PTD 1902), (2005 P1 D 2012) and (2014 PTD (Trib.) 558).
5. 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.
We have heard the arguments advanced by both the rival parties and also carefully gone through the relevant record available on the file as well as case law referred.
There is no doubt that the appellant in the instant case has transacted all payments to his suppliers through banking channel by complying with the mandatory provisions of section 73 of the Act which is the sole obligation on the buyer to ensure veracity of transactions in addition to verifying normal and operative status of his suppliers. Both, the necessary condition of verifying genuineness of suppliers from e-portal of FBR for its operative status and sufficient condition of making A payments through banking channel to ascertain the varsity of such transactions was also complied with by appellant therefore, the legislature has consciously given a right to a buyer in such cases to reclaim input tax so paid, where registration of the supplier has been suspended or has been declared blacklisted, either as a refund or by way of adjustment. Learned AR, in support his stance, has placed on record the computer profiles dated 26-01-2021 in case of M/s. Al- Suboor Packages (blacklisted on 07-06-2014), M/s. S.M Traders (suspended on 06-02-2014). We are therefore of the firm opinion that subsequent blacklisting will not disentitle the buyer from his lawful right of input tax in respect of invoices issued when the supplier was a registered and active person unless those invoices are specifically declared fake and have direct nexus with blacklisting and admittedly, the invoices in question had no direct nexus with the subsequent blacklisting of the alleged suppliers. The demand of sales tax worth Rs.1,527,399/- for the tax period of December, 2014 against the invoices of M/s. Aisha Traders is duplicated as the same has also been made in observation No. 3. It is not only tantamount to double taxation and double jeopardy but also reflects professional incompetence on the part of the audit. The ratio decidendi by the Hon'ble Lahore High Court in case of "Commissioner Inland Revenue v. M/s. Tariq Poly Pack (Pvt.) Ltd." reported as (2015 PTD 2256) is the most relevant in all fours to the case at instance of the assessee. The relevant extract of the said judgment is reproduced as under:- "In our view, it will be a fallacy to hold that mere blacklisting will automatically reject claims of input tax and refund against all validly issued previous invoices, when the supplier was not blacklisted rather was duly registered and active on FBR website and said invoices having not been declared fake specifically, have no nexus with blacklisting. No doubt ambiguity abounds rule 12(5) but it will be unreasonable to hold that merely because supplier has become blacklisted, the entire series of invoices issued by him before blacklisting will be rejected. It will also infringe the accrued vested rights of the registered person/purchaser who held valid invoices when the supplier was not blacklisted rather active and duly registered."
Now coming up to the second issue of non-payment of further tax under section 3(1A) of the Act against supplies made to registered buyers whose status was declared suspended/blacklisted subsequently, suffice it to say that charge of fake sales declared to suspended / blacklisted buyers to avoid payment of further tax chargeable against sales made to un-registered persons is totally based upon assumption and hypothesis without any material evidence as the appellant has supplied the alleged goods to registered buyers M/s. SC Pakistan having STRN 17-00-1340-478-15 and M/s. KGM Textile having STRN 17-00-1280-. 079-12 duly issued by the FBR. The appellant has made all supplies under the coverage of proper Sales tax invoices issued in terms of section 23 of the Sales Tax Act, 1990 and due tax was also deposited in the monthly sales tax returns therefore, provisions of section 3(1A) of the Act cannot be applied to the persons who were registered and operative at the time of transactions and were declared suspended/blacklisted units subsequently. Beyond any doubt, the appellant has declared sales vis--vis output tax thereon in his respective monthly sales tax returns for the periods in question and no further tax was chargeable thereon as in case of supplies made to registered buyers, provisions of further tax under section 3(1A) of the Act are not attracted at all, particularly when all payments in its respect have also been received through banking channel as requisitioned under section 73 of the Act hence, supplies made to alleged registered buyers cannot be treated as supplies made to un- registered persons on the following grounds:-
(i) The registration of the buyers was suspended/blacklisted and not cancelled; there is a difference between blacklisting and in its cancellation thereof.
(ii) The buyers were registered/operative persons at the time of transactions and if they have been declared as suspended/black-listed units subsequently on 21-12-2017 and 11-08-2014, it does not equate them to be un-registered persons.
(iii) No orders for de-registration or cancellation of the registration of alleged buyers was ever issued by the learned CIR under section 21 of the Act without which they cannot be treated as un-registered persons on the sweet will of any Inland Revenue Officer.
As far as, the third issue of inadmissible input tax claimed against purchases from irrelevant sector not used in taxable goods/supplies is concerned, we are of the firm opinion that instant charge is totally based upon assumption and hypothesis without any material evidence as the appellant is registered under the Sales Tax Act, 1990 as a manufacturer and engaged in the business of textile printing material i.e. labels, heat transfer labels, tags, badges used in Jeans, T-Shirts, Cloth Gloves, Underwear, Sportswear, Curtains, etc which are mainly supplied to exporters of garments. It is not disputed that the appellant is a manufacturer of textile products and claimed input tax refund on the alleged goods purchased with valid sales tax invoices and used the same for manufacturing of taxable activity, veracity of which has not been questioned. Thus there has been created a legitimate right of input tax adjustment or refund under the provisions of section 7 read with section 10 of the Sales Tax Act, 1990 for the appellant.
We have found that though the alleged goods/services are not direct in use for manufacturing or production of taxable goods yet these are indirectly used for the progress, promotion, advancement and enhancement of business activity and there is nothing emphatic in the Act strictly providing direct use of any goods or services in manufacturing process of taxable goods for the purpose of claiming of input tax credit or adjustment therefore, recovery of already refunded amount thereon is highly illegal and unjustified. In this case of the appellant, the officer has failed to establish this crucial aspect of case; whether the appellant's goods were used for any purpose other than taxable supply. Rather on perusal of impugned order, it is found that the officer has himself admitted that the purchased items have been used by the appellant for manufacturing of taxable goods but the same are not the integral part of taxable supplies. It is also a settled preposition that once a registered person establish that the goods/services in question on which input tax has been paid were used or to be used "directly, indirectly or even remotely" for the purpose of 'taxable activity' or for the purpose of 'taxable supplies' made or to be made by that person, then the person becomes entitled to the deduction of the said input tax paid by the person for the said purpose from the output tax that is due from the person in respect of a particular tax period in terms of section 7 of the Act. We respectfully agree with the reported judgment of Hon'ble Supreme Court of Pakistan in case of "Collector of Customs Sales Tax and Central Excise and others v. M/s. Sanghar Sugar Mills Ltd., Karachi" reported as (PLD 2007 SC 517 = 2007 PTD 1902) which undoubtedly makes it clear that the goods which are used for the progress, promotion, advancement of the business activity are part of a taxable supply. The relevant paragraph of the said judgment is reproduced hereunder:- "It is abundantly clear that the taxable supply has not been confined or limited to the one which is the product or the goods manufactured but also including those goods which involve in some way with the progress, promotion, advancement of business activity/taxable activity."
It is important to observe here that the keyword used in both section 7 and section 8(1)(a) of the Act is "purpose" which meant that input tax could be deducted on goods used for the purpose of taxable supplies. In other words, issue of adjustment of input tax was to be resolved with reference to the actual use of input in making of taxable supplies and criterion of integral part is not valid. The expression "purpose" has a very wide application and according to dictionary meaning the same refers to what something is supposed to be achieved. In this case, there is no doubt that the alleged goods were placed to achieve the growth in the business and that fulfils the requirement of 'purpose' as used in the relevant provisions of law. In similar situation and identical circumstances, Hon'ble Sindh High Court, Karachi in case of "Collector of Sales Tax v. M/s. Dhan Fibre Limited" reported as (2005 PTD 2012) has laid down that: "The machinery spare parts and lubricants are used to facilitate the production/manufacturing of the end product, therefore, the appellant could claim input tax credit on the machinery spare parts and lubricants, even if they are not direct constituent and integral part of the Textile yarn/end product."
On perusal of section 8(1)(a) of the Act, it is found that no condition of direct relationship of input goods to manufacturing of finished goods is provided therein however, condition of its use for the purpose of making of taxable supplies is specified and the appellant do qualify for entitlement of input tax credit on the goods in question as the same are not used for any purpose other than for taxable supplies because all of supplies made by the appellant are restricted to taxable supplies only hence, denial of input tax credit or refund on the items/goods meant for the purposes of taxable supplies made or to be made by the registered person is illegal and against the provisions of law. In another case like the present one, a Division Bench of ATIR, Lahore in ref: "Commissioner Inland Revenue, Faisalabad v. M/s. Chenab Board, Faisalabad" (2014 PTD (Trib.) 558), held as under:- "The alleged good were not used for any purpose other than taxable supplies and provisions of section 8(1)(a) of the Act are not attracted nor the entitlement of input tax thereon is precluded by a notification under section 8(1)(b) of the Act therefore, denial from input tax adjustment or the case may be credit paid on such goods is illegal and unlawful and utter violation of mandatory provisions of law. It is not out of question to mention here that no condition of direct relationship of input goods to manufacturing of finished goods is provided in section 8(1)(a) of the Act however, condition of its use for the purpose of making of taxable supplies is specified therein and the respondent do qualify for entitlement of input tax credit on the goods in question on as the same are not used for any purpose other than for taxable supplies because all of supplies made by the respondent is restricted to taxable supplies only. The learned officers of intelligence and investigation were not well-versed with the use of kerosene oil which is used in the purposes of making pulp from raw materials like straw, husk and raddi, etc. which is, use of making of paper and paper board products. Since, kerosene is wholly used for the purpose of taxable supplies only therefore; no recovery can be made from the respondent "
In view of what has been stated and particularly in the light pf legal propositions discussed hereinabove, the titled appeal is accepted and impugned show-cause notice and consequent orders of both the authorities below being illegal and unlawful are hereby set aside.
7. The appeal filed by the registered person is disposed of in the manners as indicated above.