MIAN TAUQEER ASLAM, CHAIRMAN. (1). Titled sales tax appeal has been filed at the instance of the registered person against order-in-appeal No. 998/2023 dated 22.08.2023 passed by the learned CIR(Appeals-II), Faisalabad.
2. Brief facts are that an information was received in the Directorate of Intelligence & Investigation IR, Faisalabad that appellant is involved in supply of taxable goods without getting sales tax registration and has failed to pay due amount of sales tax. Electricity bills were obtained which revealed that Rs. 1.6(M) on account of electricity from October-2017 to Septeber-2018 was paid.
Consequently, Directorate authorized a team to conduct investigation and after scrutiny, it was revealed that the appellant is engaged in production of taxable goods without getting sales tax registration. The Directorate conducted investigation & prepared contravention report and forwarded the same to RTO, Faisalabad. On the basis of contravention report, a show cause notice dated 02.10.2019 was issued as to why sales tax amounting to Rs. 51,645,074/- may not be recovered u/s 11(3) of the Act alongwith penalty and default surcharge under section 33 & 34(1) ibid. The ACIR being dissatisfied with the explanation given by the appellant passed order No. 174/2019 dated 03.12.2019, directing the appellant to pay confronted sales tax amount alongwith penalty under section 33 of the Act and default surcharge under section 34 of the Act.
3. Being aggrieved by the said order, appellant filed the first appeal before the learned CIR(A), Faisalabad who disposed it against the appellant and uphold recovery of sales tax vide appellate order No. 140/2020 dated 05.08.2020. In the first round of litigation, appellant being aggrieved by the said appellate order of CIR(A), has filed the second appeal before this Appellate Tribunal, Inland Revenue, Lahore which was remanded back vide order dated 25.04.2022 to the assessing officer to determine exact nature of business of appellant and to determine as to whether business activity of appellant falls under zero-rated regime.
4. In the second round of litigation, appellant filed written reply supported with documentary evidences on 20.06.2023 contending therein that appellant is involved in the business of dying services on behalf of others instead of sale and purchase of fabrics and too business activity of appellant falls under zero-rated regime. In support of his stance, appellant submitted copies of services bills, detail of clients alongwith their complete addresses, telephone numbers, NTN/CNIC numbers & computer profiles of the buyers. Further established that processing of fabrics by the appellant owned by other persons whether registered or not have been zero-rated by the Federal Government respectively through clause (iii) of Sr. No. 1 and Sr. 2 of Table-II given under S.R.O 1125(I)/2011 as amended through No. S.R.O 491(I)/2016 however, the DCIR without conducting any inquiry and without giving any findings thereon has adjudged liability of sales tax against appellant vide order No. 608/2022 dated 20.06.2023.
5. Being aggrieved, the appellant registered person filed first appeal which was decided vide impugned order, whereby the case was remanded back to the assessing officer. Being aggrieved, the registered person filed the instant second appeal before this Tribunal on the grounds as set forth in the memo of appeal.
6. At the very outset of his arguments, learned AR vociferously stated that assumption of jurisdiction in the case of the appellant was illegal, unlawful and void ab initio as the Officers of Directorate of Intelligence & Investigation (IR), Faisalabad have not been 'appointed' by the Board as Officers of Inland Revenue in terms of section 30A(1) of the Sales Tax Act, 1990 after amendment through Finance Act, 2019 through which the word "post" was substituted with "appoint" and SRO was required on the pattern of SRO 302(I)/2018 therefore, whole exercise of conducting investigative audit and creating huge demand of sales tax is illegal and without lawful jurisdiction.
Learned AR submitted that the CIR(A) was not justified in remanding the case back, being violative of section 45B(3) of the Act, particularly when the CIR(A) has annulled the order of the adjudicating authority after holding that appellant produced all the relevant documents therefore, remanding the case back for fresh adjudication as such the direction is tantamount to give a chance to the department to fill in the lacunas to improve its case. It is submitted by the learned AR that the CIR(A) was not justified to remand the case back to the Assessing Officer as the learned CIR(A) in terms of section 45-B(3) of the Act is not competent to provide another chance to the assessing officer to improve his case. The act of remanding the case back by the CIR(A) is illegal and unlawful which may therefore be decaled nullity in the eye of law. In support of his stance, he placed reliance on (1996 SCMR 230), (2002 PTD 1573), (2013 PTD 881), (2017 PTD 373) & (2020 PTD 1553). Learned AR also argued that appellant was compulsorily registered by the CIR on 18th September, 2019 and as per Rule 6(4) of the Sales Tax Rules, 2006 notified vide S.R.O. 555(I)/2006, compliance to the provisions of the Sales Tax Act, 1990 and the rules made thereunder would commence from the date of compulsory registration instead from the periods prior to its registration. In order to strengthen the contentions, learned AR relied upon (PTCL 2018 CL 381), (2020 PTD (Trib.) 562) & (2020 PTD (Trib.) 2048).
7. While arguing on merits of the case, learned AR has termed the actions of both the authorities below to be illegal, void, arbitrary and contrary to the facts of the case. Learned AR vehemently contended that the allegation of supplies of dyed cloth/fabrics without charging sales tax is baseless and frivolous because the appellant as a manufacturer is engaged in rendering processing services of dying of fabrics on job basis against certain dying charges and processing of goods owned by other persons was zero-rated under Sr. No. 2 of Table-II of S.R.O. 1125(I)/2011 as amended vide S.R.O. 491(I)/2016 owned by registered or unregistered persons was covered under the said notification and sales tax on processing charges received in its respect was zero percent.
Lastly, it was the view point of the learned AR that fabrics resumed from appellant's business premises at the time of action u/s 38 of the Act do not pertain to him as the same belongs to other parties on behalf of which the appellant was rendering services of dying of fabrics hence, departmental case is totally based upon hypothetical calculations. To support his stance, learned AR produced copies of services bills, detail of clients & their complete addresses, telephone numbers, NTN/CNIC numbers & computer profiles of the buyers and also produced computer profile & sales tax returns of the appellant alongwith copies of SRO 1125(I)/2011 dated 31.12.2011 as amended vide SRO 491(I)/2016 dated 30.06.2016. On the strength of these assertions, learned AR seeks vacation of the impugned orders passed by both the authorities below.
8. On the other hand, in counter arguments, learned DR has opposed the contentions of learned AR and supported the orders of authorities below for the reasons recorded therein and reiterated almost the same arguments as advanced earlier at time of adjudication and fully supported orders passed by both authorities below by re-endorsing basis evolved therein.
9. After hearing both the rival parties at considerable length and minute scrutiny of the relevant record made available before us, we are of the considered view that the appellant is engaged in processing of textile goods, rendering services of dying of fabrics, owned by other persons, on job basis against certain dying charges. The processing services extended on job basis against certain processing charges is the vital factor in the instant case that the fabrics, on which processing services rendered by the appellant, in form of dying, were owned by other persons and only processing charges were received for its processing and no tax was chargeable thereon being zero-rated of textile goods/services. The processing of textile goods owned by other persons on job basis against certain dying charges was zero-rated under Sr. No. 2 of Table-II of SRO 1125(I)/2011 dated 31-12-2011 as amended vide SRO 491(I)/2016 dated 30-06-2016 and there is no dispute between the parties to the extent that processing of goods whether owned by registered or unregistered persons was covered under the said notification and sales tax on processing charges received in its respect was zero percent. The SRO 1125(I)/2011 was subsequently amended by SRO 491(I)/2016 and by virtue of the latter SRO, processing of fabrics owned by other persons have been subjected to zero-rate of tax. In the present case, admittedly processing services of fabrics owned by other persons were rendered after the issuance of SRO No. 491(I)/2016 therefore, cannot be subjected to the levy of sales tax at all. As the said notification clearly states that no sales tax except at zero rate can be charged hence, demand under the impugned show cause notice is illegal and without lawful authority. It is very astonishing to note that despite clear cut directions given by this Tribunal to determine the nature of business & zero-rating status of the appellant, the assessing officer passed a stereotyped order without conducting any inquiry and without verifying the documents filed by the appellant on 20.06.2023 which rendered whole exercise of adjudication illegal and nullity in the eyes of law. It is well-settled principle of law that the decision which is not based on reason is not judgment in eyes of law.
10. Furthermore, the learned CIR(A) was also not justified in remanding the case back, being violative of section 45B(3) of the Act, particularly when the CIR(A) has annulled the order of the assessing officer after holding that the appellant produced all the relevant documents and arguments of the learned AR carry weight. We are of the firm view that remand of the matter for fresh adjudication was not warranted. Such an order is not sustainable and is set aside as the learned CIR(A) was not justified to remand the case back for fresh proceedings despite having powers of further inquiry, as may be necessary, as such the direction is tantamount to a chance to the department to fill out the lacunas to improve its case. The provisions of section 45B(3) of the Act have authorized the CIR(A) to undertake further enquiries to ascertain the facts rather than remitting the case to a lower forum. The legislative policy behind provisions of section 45B(3) of the Act is to curb prolonged and protracted litigation at the cost and inconvenience of taxpayer. The CIR(A) by not noticing the illegalities committed by the assessing officer has not properly exercised the jurisdiction vested in him. Instead of remanding the case back, the CIR(A) should have decided the appeal on the basis of documentary evidences placed by the appellant. The remand of matter to a lower authority should only be made if the material already vailable on record is not sufficient to dispose of the issues. A remand order would have meant that the taxpayer would have been subject to another round of cumbersome proceedings which is deprecated in law and such order should not be passed in a routine manner to allow an authority to fill in the lacunas and to improve flagrant errors occurred during adjudication proceedings. In this regard, we gain strength from the judgments of Hon'ble Supreme Court of Pakistan reported as (1996 SCMR 230) and Hon'ble High Courts reported as (2002 PTD 407 (HC. Kar.) & (PTCL 2007 CL 462 (HC. Lah.).
11. In view of what has been discussed hereinabove, particularly in the light of record, instant appeal is accepted and impugned show cause notice and consequent orders of both the authorities below being illegal and unlawful are hereby set aside.
12. The titled appeal filed by the registered person is accepted in the manners as indicated above.