ZAHID SIKANDAR, JUDICIAL MEMBER.----Through this single order, we intend to dispose of both the Cross Appeals Nos. 1187/LB/2013 and 1215/LB/2013 filed by the taxpayer as well as the department against 'the Order-in-Appeal No.687 dated 11.11;203 passed by the Learned CIR (Appeals).
2. Brief facts of the case are that it transpired to the taxation officer that the taxpayer claimed inadmissible input tax amounting to Rs.31,362,082/- on account of fake/flying invoices issued by the blacklisted, suspended, suspected and non-filers units namely M/s Mukhtar Chemicals, M/s Noman Corporations, M/s S.S International and M/s State Lubricants. A show-cause notice under section 11(5) was, issued to the taxpayer in this regard by the taxation officer to the effect as to why sales tax amounting to Rs.31,362,082/- along with default surcharge and penalty might not be recovered from the company. The said proceedings culminated in passing of order in original dated 30.07.2013 by the learned DCIR. The said order-in-original was passed ex-parte as no one appeared on behalf of the taxpayer before the DCIR. The learned officer on the basis of available record declared the sales tax adjustment amounting to Rs.31,362,082/- against invoices of the above named units inadmissible and held the same as recoverable along with default surcharge and penalty under the provisions of Sales Tax Act, 1990.
3. Feeling aggrieved by the aforesaid order, the taxpayer filed an appeal under section 45B of the Sales Tax Act before the Commissioner (Appeals). The Learned Commissioner (Appeals) after hearing the matter vide order dated 11.11.2013 accepted the plea of the taxpayer in the case of M/s. State Lubricants involving sales tax of Rs.406,990/- on account of non-provision of any proof by the department regarding the blacklisting order. The learned CIR(A) set aside the recovery of sales tax to the extent of Rs.1,709,239/- for the tax periods 07/2006, 10/2006, 08/2007, 03/2006, 09/2005, 09/2007, 04/2007 and 11/2006 being not covered under section 11(2) of the Sales Tax Act. Whereas the Learned CIR(A) confirmed the remaining portion of recovery of sales tax amounting to Rs.29,245,853/- being inadmissible and on account of fake invoices issued by blacklisting units.
4. Hence, these second appeals have been filed by the taxpayer and the department against the Order-in-Appeal No.687/2013 passed by the CIR(A) against their respective grievances. The grounds of both these appeals as set forth in the memo. of appeals by the taxpayer and the department are as under: Taxpayer Grounds:
1. That the order of Learned CIR(A) R.T.O. Faridabad is bad in law and against the facts of the case.
2. That the Learned CIR(A) Faisalabad was not justified to confirm the order of Learned DCIR enforcement unit 03, R.T.O. Faisalabad for rejection the input clam on the basis of the blacklisted status in case of M/s S.S. International after three years. That the claimed input was according to law and supplier was active in status when appellant made transactions with them.
3. That the Learned CIR(A) Faisalabad was not justified to confirm the order of Learned DCIR enforcement unit, 03 R.T.O. Faisalabad regarding the treatment of rejection the claim of input the sales tax at Rs.28767,872/- in case of M/s S.S. International. The detail as under:- Sr.No.Name of supplierMonths of claim Amount
1. S.S. International07/2010 1,100,374
2. S.S. International08/2010 1,575,763
3. S.S. International09/2010 2,149,652
4. S.S. International10/2010 1,874,055
5. S.S. International11/2010 1,728,440
6. S.S. International12/2010 932,410
7. S.S. International01/2011 1,388,233
8. S.S. International02/2011 269,280
9. S.S. International03/2009 319,903
10. S.S. International03/2011 1,503,010
11. S.S. International04/2011 2,230,189
12. S.S. International05/2011 1,885,985
13. S.S. International06/2011 2,557,097
14. S.S. International07/2011 2,350,530
15. S.S. International08/2011 2,296,061
16. S.S. International09/2011 990,792
17. S.S. International10/2011 1,038,061
18. S.S. International12/2011 1,459,489
19. S.S. International01/2012 847,453 20.S.S. International02/2012 1271,095 28,767,872
4. That the Learned CIR(A) Faisalabad was not justified to confirm the following transactions of input claim which are barred by time as per section 11(2) of the Sales Tax Act, 1990 because the date of Order in Original No.11/2013 dated 30/07/2013 and the transaction are related to before June 30, 2008 detail as under:- Sr.No.Name of supplier Month of claimAmount 20.Noman Corporation06/2008 60,307
21. Mukhtar Chemicals 06/2008 282,321 342,628
5. That the order of CIR(A) RTO, Faisalabad is silent on the claim of input sales tax at Rs.135,353/- for the month of April 2010 which was accepted by Learned ACIR by withdraw the show-cause notice in this respect as per Order-in-Original No.119/2011 and ASTA No.655/LB/2011.
Further, the Leaned DCIR Enforcement Unit, 03 / and CIR(A) RTO, Faisalabad was not justified to take up the claim which already been decided by the competent authorities.
Department Grounds:
1. That the order of the Commissioner Inland Revenue (Appeals), Faisalabad is bad in law and contrary to the facts of the case.
2. That the order of the Commissioner Inland Revenue (Appeals), Faisalabad was not justified to uphold the issuance of refund on invoices of blacklisted suppliers who did not deposit the due amount of tax.
3. That the order of the Commissioner Inland Revenue (Appeals), Faisalabad is not consistent with the provision of sections 7, 8, 8A, 8(1)(d), 10, 26 and 73 of the Sales Tax Act, 1990.
4. That the order of the Commissioner Inland Revenue (Appeals), Faisalabad was not justified to allow the claim of input tax / refund against the invoices issued by the suspended / blacklisted and the decision of the learned Commissioner Inland Revenue (Appeals), Faisalabad in contrary to the provision of sections 2(14), 2(37), 7, 8, 8A, 22, 23 and 26 of the Sales Tax Act, 1990.
5. The Learned AR on behalf of the taxpayer contended that the order-in-appeal to the extent of confirmation of Recovery of Rs.29,245,853/- was passed by the adjudicating officer without appreciating the facts of the case and is against the law settled in the judgments passed by the apex courts. He further submitted that the purchases under question pertain to the periods where the supplier units were operative and were not included in the list of black listed units. Therefore, the learned officer was not justified to order recovery on the basis of subsequent blacklisting of the suppliers. The learned AR supported the order of setting aside of recovery to the extent of Rs.1,709,239/- being time-barred however submitted that the Learned CIR(A) was not justified to confirm the transaction related to before June 30, 2008 of input tax which is also barred by time under section 11(2) as the order-in-original was passed on 30.07.2013. The Learned AR also supported the appellate order passed by CIR(A) to the extent of setting aside of recovery of sales tax amounting to Rs.406,990/- in the case of M/s State Lubricants as the department failed to produce any order of blacklisting before the adjudication officer as well as appellate authority.
6. On the other hand, the Learned DR strenuously argued that the input adjustment was claimed by the taxpayer against the fake invoices issued by blacklisting units. He submitted that under the law there is no room for claim of input tax based on fake invoices. He further added that no tax was deposited in the government exchequer in lieu of the disputed transactions. The learned DR supported the order of CIR(A) to the extent of confirmation of recovery of Rs.29,245,853/- however, he contended that the learned CIR(A) was not justified to set aside the rest of the recovery order.
7. We have heard the arguments of the representatives of the rival parties and have also p used the impugned order as well as the order passed by DCIR and the record.
8. The first issue in the instant appeals pertains to the case of M/s Lubricants wherein the Learned CIR(A) set aside the recovery of sales tax amounting Rs.406,990/- as no order of blacklisting was given as a proof by the department. The only reason given by the learned CIR(A) to set aside this recovery was that the department did not provide any proof of blacklisting with regards to M/s Lubricants. The issue of blacklisting will be dealt in detail in the following paras so this particular issue will be decided alongside other co-related issue of blacklisting against other companies.
9. The next issue involves the setting aside of recovery of sales tax of Rs.1,709,239/- by the CIR(A) regarding tax periods 07/20156, 10/2006, 08/2007, 03/2006, 09/2005, 09/2007, 04/2007 and 11/2006 being time barred under section 11. The learned AR placed the copy of show-cause notice issued by the DCIR to the taxpayer. The time limitation to initiate proceedings under section 11 by way of issuance of A show-cause notice is 5 years from the relevant date. In the instant case show-cause notice with regards to tax periods 07/2006, 10/2006, 08/2007, 03/2006, 09/2005, 09/2007, 04/2007 and 11/2006 was issued on 04.04.2013 which is certainly beyond the period of limitation i.e. 5 years.
The relevant section 11(5) of the Sales Tax Act is reproduced below for the ready reference.
11(5): "No order under this section shall be made by an Officer of Inland Revenue unless a notice to show- cause is given within five years, of the [end of the financial year in which the relevant date falls]. To the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard.
Provided that order under this section shall be made within on hundred twenty days of issuance of show-cause notice or within such extended period and the Commissioner may, for reasons to be recorded in writing, fix period that such extended period shall in no case exceed ninety days: Provided further that any period during which the proceedings are adjoined on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding sixty days shall be excluded from the computation of the period specified in the first proviso."
In the light of above, the learned CIR(A) rightly set aside the recovery of Rs.1,709,239/- for the tax periods 07/2006, 10/2006, 08/2007, 03/2006, 09/2005, 09/2007, 04/2007 and 11/2006. Therefore, this issue is decided in favour of the taxpayer and against the department.
10. The plea of the learned AR that the Learned CIR(A) was not justified to confirm the transaction related to before June 30, 2008 of input tax which is also barred by time under section 11(2) as the order-in-original was passed on 30.07.2013 is not correct as from the bare perusal of the above referred section 11(5) it is clear that the time limitation of 5 years is for the issuance of show cause notice. The limitation of 5 years in this provision is for the issuance show-cause notice and not for the passing of order in original. Once, show-cause notice is issued within 5 years from relevant date then the officer inland revenue is required to pass an order against the show-cause notice within one hundred and twenty days from the issuance of show cause notice or within extended period. In the instant case, show-cause notice admittedly was issued to the taxpayer on 04.04.2013 therefore argument of the learned AR is not valid and is turned down.
11. The next issue pertains to the confirmation of recovery of sales tax amount of Rs.29,245,853/-.
The Learned CIR(A) held the amount recoverable as the taxpayer failed to prove the genuineness of the claim. The DR on behalf of the department supported the confirmation of recovery in the order and submitted that input claim refund was got on the basis of fake invoices issued by blacklisted suppliers who did not deposit the tax in the Government exchequer and the taxpayer failed to prove the genuineness of the claim. The Learned AR placed the documents pertaining to the registration status of the suppliers involved in the instant matter. As per documents provided by the AR M/S Mukhtar Chemicals and M/s State Lubricants registered on 03.03.2004 and 08.11.2004 respectively are shown registration status 'operative' whereas M/s Noman Corporation and M/s S.S. International registered on 07.05.2005 and 11,10.2005 both were shown as blacklisted w.e.f.
03.07.2013. Though these documents were confronted to the DR who neither controverted the same nor raised any objection with regards to the veracity of the documents. However, the documents provided do not portray a clear picture of the status of the suppliers at the time of transactions.
12. Invoices which are issued by the suppliers at the time when, the suppliers are operative or not blacklisted/suspended or such invoices which have no nexus with the blacklisting order cannot be held inadmissible for input adjustment. Initial burden lies on the department to establish that invoices had been issued during a period when the supplier was blacklisted or suspended. In case invoices are not issued during such period of blacklisting/suspension then the department has to prove that the cause or reason for the blacklisting has some nexus with such invoices. However, this burden can be shifted upon the registered person claiming adjustment or refund of tax, in case of tax fraud, in accordance with the provisions of section 2(37) of the Act. Reliance is placed on 2020 PTD 232, 2019 PTD 298, 2019 PTD 257, 2019 PTD 2260, 2019 PTD 160. There is nothing on the record that suggests that the suppliers were either suspended or blacklisted at the time of transactions or the subsequent blacklisting of the suppliers has some nexus with the invoices under dispute. The taxation officer, in the instant case, has not made any proper inquiry or investigation to verify the blacklisting/suspension status of suppliers at the time of transactions and determine the same through a self-speaking order as required by law rather passed an ex parte order without bringing on record anything regarding the registration status of the suppliers at the time of transactions. Hence, the department failed to discharge the initial burden of proving the blacklisting/suspended status of the suppliers at the time of transactions. The CIRCA) also has not addressed this issue as per the provisions of Sales Tax Act as well as the parameters settled by the apex courts in this regard.
13. Though, any subsequent blacklisting of the supplier does not render the transactions invalid or fake on this score unless such subsequent blacklisting has some nexus with the invoices in dispute, but there is another aspect of the case with regards to the genuineness of claim of input tax by the purchaser. Even if the supplier was active or operative at the time of transactions still the purchaser claiming the input tax adjustment is supposed to hold taxable invoices duly issued by the supplier and to prove the same along with the physical delivery of goods. The purchaser is also required to prove the mandatory compliance of section 73 of the sales tax act to ensure veracity of the transactions in addition to verifying normal and operative status of his suppliers. The burden of proving that input tax claim is correct lies upon the person claiming such input tax. For the purpose of claim of input tax claim, it is also to be ascertained by the department that the sales tax was deposited in the government treasury. Once all these conditions stand fulfilled only, then the claim of input tax is allowable under the law. In a case titled as Commissioner Inland Revenue v. M/s Ali Hassan Metal Works reported in 2018 PTD 108 it was held by the Hon'ble Division Bench of Lahore High Court that intention of legislature; as is discernable from the provisions of section 21(3) read with section 8(1)(ca) is that reclaim/refund of adjustment of input tax should not be allowed for an invoice against which sales tax has not been deposited in government treasury. This clog appears to be logical because a tax not deposited in the exchequer, cannot and should not, be allowed to be withdrawn or adjusted. Claim of such refund or adjustment amounts to rob the exchequer and cheat upon the state. Conversely, to deny adjustment or refund of tax deposited in treasury, if a registered person is entitled under the law, is against the legislative will.
14. We have looked into the instant matter and after due consideration we find that the taxpayer/purchaser failed to establish the genuineness of claim by providing requisite documentary evidence before the authorities below such as proof of payment in terms of section 73, physical transfer of goods, genuineness of purchase invoices. There is no proof of deposit of sales tax in the treasury available in the record. Neither the taxpayer provided any proof in this regard nor the department ascertained, the same after a detailed inquiry. The taxpayer did not appear before the assessing officer and the order-in-original was passed ex-parte. The taxpayer also failed to establish the genuineness of claim by providing the requisite documents as stated above to the appellate authority.
15. Both the orders below do not reflect a detailed inquiry or investigation by the authorities for the purpose of adjudication of input tax claim by the taxpayer. The authorities exercising quasi-judicial powers under a statute are bound to conduct a fair adjudication. The August Supreme Court of Pakistan in a case titled as The Province of East Pakistan v. MD Mehdi Ali Khan reported in PLD 1959 SC 387 held as under: "The determination of every right or liability claimed or asserted in a legal proceeding depend upon the ascertainment of facts and the application of the law to the facts so found. It is a normal feature of a judicial process first to discover the facts and then to determine what rights and liabilities follow from the application of the law to the fact found".
16. On the other hand, it appears that taxpayer has also not discharged his statutory obligation of providing the requisite record for the purpose of verification of his rightful claim of input tax.
17. Keeping in view the above said discrepancies from both sides we set aside the order of CIR(A) to the extent of this issue and consider it appropriate to remand back this issue of recovery of sales tax amounting to Rs.29,245,853/- to the assessing officer for decision afresh. Since the only question involved in the case of M/s Lubricants regarding the recovery of Rs.406,990/- is the proof of blacklisting therefore for the reasons stated in the preceding paras we also vacate the order of CIR(A) to the extent of setting aside of recovery of Rs.406,990/- and remand back the same alongside the issue of recovery of Rs.29,245,853/- to the assessing officer for verification and decision afresh. Both the issues are remanded to the assessing officer with the following guidelines. i. The registered person/purchaser who reclaimed or deducted input tax had actually paid the tax to the supplier or not. ii. If the input tax was paid by the registered person/purchaser but not deposited by the supplier, then for purpose of section 8A of the Act, whether the registered person/purchaser was in knowledge or had reasonable ground to suspect that some or all of the tax payable in respect of supply would go unpaid? iii. Whether particular invoices issued prior to blacklisting was fake and flying has direct nexus with the blacklisting. iv. What was the status of M/s Lubricants and other suppliers at the time of transaction/issuance of invoices? v. Whether mandatory compliance of section 73 of the sales tax act in the instant case was made by the parties i.e. seller and buyer? vi. What was the mode and manner of physical delivery of goods?
18. The assessing officer is directed to decide the matter through a speaking order in the light of above stated guidelines within two months from the date of the receipt of this order after providing opportunity of hearing to the taxpayer.
19. With the above stated reasons and observations, these two second appeals stand disposed of.
20. Order accordingly.