MR. SARFRAZ ALI KHAN (JUDICIAL MEMBER).--(1). Through this appeal filed by the registered person under section 46(1)(b) of the Sales Tax Act, 1990, on the grounds as set forth in the memo of appeal, has impugned order C. No. 1805 dated 22-02-2022 passed by the learned CIR (Enforcement), LTO, Multan whereby his sales tax registration was suspended.
2. Succinct history for disposal of the instant case are that the appellant is integrated with the FBR Online System but is not issuing the. POS generated invoices and the RTO Rawalpindi intimated the LTO, Multan that the appellant was not only running the outlet at Rawalpindi claimed to have been closed but also issuing invoices containing their NTN & STRN without issuing the same through POS System and this fact was also verified from its retail outlets at Faisalabad, Rawalpindi, Mardan and Swat. The sale receipts generated by these outlets show the appellant's NTN and STRN with the amount of sales tax collected however, no sales tax has been paid by the appellant on account of such retail sales which indicate that appellant is involved in tax fraud as defined under section 2(37) of the Act and attract the provisions of section 21(2) of the Sales Tax Act, 1990. Resultantly, a show cause notice dated 16-02-2022 for suspension of sales tax registration was issued by the learned CIR (Enforcement), LTO, Multan. Subsequently, learned CIR through his Order bearing C.No. 1805 dated 22-02-2022 while exercising powers conferred upon him under section 21(2) of the Act read with sub-clause (g) of Clause (i) of Rule 12(a) of the Sales Tax Rules, 2006 notified vide SRO 555(1)/2006 dated 05-06-2006, suspended the registration of the appellant and finally the learned CIR (Enforcement), LTO, Multan has also issued a show cause notice C.No. 1847 dated 25-02-2022 under section 21(2) of the Act read with Rule 12(b)(i) of the Sales Tax Rules. 2006 for blacklisting of appellant's status from FBR e-portal.
3. At the very outset of his arguments, learned counsel for the appellant vehemently contended that provisions of section 21(2) of the Act do not empower the CIR to suspend or blacklist a registered person on the ground that he is not issuing the POS generated invoices and also not paying sales tax on account of such retail sales, in violation of section 3(9A) of the Act. It was however forcefully urged on behalf of the appellant that as per Rule 150(ZEF) of Chapter-XIV-AA of the Sales Tax Rules, 2006, an integrated supplier who contravenes any of the provisions of this Chapter; his input tax shall be reduced in terms of sub-section (6) of section 8B of the Act and an appealable order to this effect shall be made by an Officer Inland Revenue ordering recovery of tax amount due under the Act but no action of suspension of registration and blacklisting is provided under law. Learned counsel assailed that in case, a registered person is found involved in non- payment or short payment of sales tax, then a separate procedure is available under the Sales Tax Act, 1990 for recovery of the same in terms of section 11(2) of the Act instead of proceedings initiated under section 21(2) of the Act. It was stated by the learned counsel that mandate of section 21(2) is restrictive in nature and the CIR can only suspend or blacklist a registered person if he is satisfied that such person is involved in issuance of fake invoices or otherwise has committed a tax fraud. Learned counsel argued that rule 12 of the Sales Tax Rules, 2006 is subservient to the main provision of section 21 of the Act and it cannot go beyond the statutory provision. In order to strengthen the contentions, learned counsel relied upon (1985 SCMR 365). (2003 SCMR 370), (2007 PTD 2188) & (2016 SCMR 550). He elaborated his view point by maintaining that the whole exercise has been carried out by the learned CIR merely on "suspicion" without conducting any independent "inquiry" before proceeding to form an opinion to suspend the registration and without independently establishing the incidences of 'tax fraud' and 'issuance of fake invoices'. To strengthen his contention, learned counsel placed reliance on the judgments of Hon'ble High Court, Lahore in case of "M/s. Imran All Lubricants vs. Federation of Pakistan and others" reported as (PTCL 2018 CL. 570) as also uphold in an Intra Court Appeal reported as (PTCL 2019 CL. 476).
Learned counsel while summing up his arguments contested that the allegations against the appellant are baseless and frivolous because the appellant has already informed the learned CIR (IR-IP) RTO, Faisalabad vide its letter dated 20-10-2020 and the learned Chief Commissioner (LTO), Multan vide letter dated 04-08-2021 followed by a letter dated 14-09-2021 that all the outlets have been closed and requested for updating of this information in the computer system of FBR (ITMS Profile) and the facts narrated were also supported by an affidavit through which the contents of the same were verified on oath. On the strength of these assertions, learned counsel seeks vacation of the impugned order for suspension of registration and consequent show cause notice issued for blacklisting the appellant.
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 and judgments advanced by the learned AR for the registered person however, simply supported the impugned order and subsequent show cause notice of the learned CIR.
5. After having heard the arguments of both the rival parties and carefully examining the order for suspension of sales tax registration and consequent show cause notice issued for blacklisting, it is pertinent to reproduce the relevant provisions of section 3(9A), Rule 150(ZEF) of Chapter-XIV-AA of the Sales Tax Rules, 2006, section 21(2) and section 11(2) of the Sales Tax Act, 1990 having immense importance to resolve the controversy, which read as under:-- Section 3(9 A).--Notwithstanding anything contained in this Act, Tier-I retailers shall pay sales tax at the rate as applicable to the goods sold under relevant provisions of this Act or a notification issued there under:-- Provided further that from such date, and in such mode and manner, as prescribed by the Board, all Tier-1 retailers shall integrate their retail outlets with Board's computerized system for real-time reporting of sales.
Rule 150ZEF. Consequences of non-compliance or contravention.--The integrated supplier who is found to have tampered with the system or made sales in the manner otherwise than as prescribed in this Chapter, or who contravenes any of the provisions of this Chapter, shall in accordance with sub-section (6) of section 8B of the Act no more be eligible for the reduced rate, if otherwise applicable, and his input tax shall also be reduced in terms of that sub-section (6) of section.
8B. An appealable order to this effect shall be made by the Officer Inland Revenue having jurisdiction after giving an opportunity of being heard, besides imposing penalty as applicable and ordering recovery of tax amount due under the Act.
Section 21(2).--Notwithstanding anything contained in this Act, in cases where the Commissioner is satisfied that a registered person is found to have issued fake invoices or has otherwise committed tax fraud, he may blacklist such person or suspend his registration in accordance with such procedure as the Board may by notification in the official Gazette, prescribe.
Section 11(2).-- Where a person has not paid the tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible under this Act for reasons other than those specified in sub-section (1), an officer of Inland Revenue shall after a notice to show cause to such person, make an order for assessment of tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with sections 33 and
34. (Underlining is ours)
A combined reading of the above provisions of law unambiguously show that the provisions of sub-section (2) of section 21 of the Act empowered the CIR to suspend or to blacklist any person, in case, where the CIR is satisfied that a registered person is found to have issued fake invoices or has otherwise committed tax fraud, he may blacklist such person or suspend his sales tax registration.
Under these provisions, action of blacklisting or suspension of registration can be taken against a registered person found to have involved in issuing fake invoices or otherwise in committing tax fraud but this adverse action cannot be extended against a registered person who is found involved in violation of section 3(9A) of the Act instead such person shall be liable to pay penalty of five hundred thousand rupees for the first default under section 33(25) of the Act and in the same vein, under Rule 150(ZEF) of Chapter-XIV-AA of the Sales Tax Rules, 2006, the integrated supplier who is found to have tampered with the system or made sales in the manner otherwise than as prescribed in this Chapter, or who contravenes any of the provisions of this Chapter, an appealable order by an Officer of Inland Revenue for recovery of tax amount due under the Act has been provided and no action for suspension of sales tax registration and blacklisting is warranted under section 21(2) of the Act. We are of the firm view that there are no provisions in section 21(2) of the Act empowering the tax functionaries to suspend registration or blacklist a registered person merely due to non-compliance of the provisions of section 3(9A) of the Act read with the Rule 150(ZEF) of Chapter-XIV-AA of the Sales Tax Rules, 2006. The action of suspension of registration or blacklisting is an extreme step having paralyzing effect on business of any commercial enterprises and on its financial reputation as well and this type of action should be taken as last resort after establishing the gross violations entailing tax fraud and issuing fake invoices.
6. Similarly, in case, a registered person is found involved in `non-payment' or 'short payment' of sales tax, a separate procedure is available under the Sales Tax Act, 1990 such as in terms of sub- section (2) of section 11 of the Act which clearly laid down that where a person has not paid the tax due on supplies made by him or has made short payment, an Officer of Inland Revenue shall after a notice to show cause to such person, make an order for assessment of tax actually payable by that person and shall impose a penalty and default surcharge in accordance with sections 33 and 34 of the Act but no action of suspension of sales tax registration and blacklisting is provided under the law at all. Surprisingly, in the instant case, neither any audit is conducted to establish the appellant's involvement in the tax evasion or tax fraud nor did the revenue department issue any show cause notice for recovery of any short payment or non-payment of sales tax. If the statute enacts that certain action shall be taken in a certain manner and in no other manner, such requirement is absolute and that negate to attend or non-compliance will invalidate the whole proceedings.
Furthermore, concept of being "satisfied" on the part of the learned CIR clearly entails an inquiry to be undertaken as the CIR cannot be satisfied, without recourse to scrutiny of the relevant record and making an inquiry that the appellant has neither issued fake invoices nor has committed tax fraud. These are serious allegations and raised a presumption that there has to be necessarily cogent and material evidence before the CIR to come to a satisfied is called for. It is mandatory for the CIR to make some sort of inquiry before proceeding to form an opinion to suspend the registration. In the first instance before exercising power under this sub-section (2) of section 21 of the Act, the CIR has to be satisfied that a registered person is found to have issued fake invoices or has otherwise committed tax fraud. Taking each word at a time, it is important to note that legislature casted duty upon the CIR to be "satisfied" rather than having an "opinion". The dictionary meaning of the word "satisfaction" is of a stricter connotation as compare to the word opinion which usually mean belief resulting from what one thinks on his own on a particular question, where "satisfied" is a term of considerable expensiveness understood to mean free from anxiety, doubt suspense or uncertainty. It is synonymous convince beyond reasonable doubt. So far as, the term satisfaction in the context in which it has been used in section 21(2) of the Act is concerned, in our considered view, it would mean the CIR coming to conclusion on the basis of sufficient material to prove that the registered person has issued fake invoices or as otherwise committed tax fraud.
In this case, admittedly, there is no material evidence and legal basis for suspension of registration and impugned order lacks legal reasoning as there exists no material on record that appellant is involved in tax fraud because burden of proof lies on the department to establish its necessary elements. Merely invoking of provisions of section 2(37) G of the Act do not make the case of tax fraud. In legal sense, "satisfaction" could only be reached when judicial determination has been completed by placing sufficient facts before the authority concerned from both the sides. Thus to be satisfied, the CIR ought not to have only one sided indulgence, rather must give full opportunity to the other side for hearing latter's point of view before finds himself convinced beyond a reasonable doubt and exercised power under this section. The Hon'ble High Court, Lahore in case of "M/s. Imran Ali Lubricants vs. Federation of Pakistan and others" reported as (PTCL 2018 CL. 570) as also uphold by the Division Bench of Hon'ble Court vide its order dated 14-03-2019, in ICA No. 255820 of 2018 reported as (PTCL 2019 CL. 476) has laid down as under:-- "The term 'satisfaction' must be subject to preliminary inquiry, perusal of record that registered person has issued fake invoices and issuance of show cause notice to registered person so as to enable the person to upend the satisfaction already arrived at by the Commissioner."
7. In view of what has been stated, particularly in the light of law and judgments quoted supra, the impugned order for suspension of sales tax registration and consequent show cause notice issued for blacklisting are declared to be illegal, ab initio void and thus hereby set aside with the direction to restore the status of the appellant as an operative person from the date of its registration.
8. This order consists of (07) pages and each page bears my signature.