Titled sales tax appeal has been filed at the instance of the registered person against order-in- appeal No. 287/2022 dated 25-07-2022 passed by the learned CIR(Appeals-II), Faisalabad, on the grounds as set forth in the memo of appeal.
2. Briefly stated, the relevant facts of the case are that the appellant is registered as a manufacturer engaged in making of taxable supplies of machinery parts and accordingly sales tax paid on its input goods is adjusted and credited as per law. The Inland Revenue Officer, on selection of audit by the CIR, under section 25 of the Act, has conducted audit of appellant's sales tax records for the financial year commencing from 1st July, 2016 ending on 30th June, 2017 which was resulted into certain discrepancies on basis of which a show cause notice dated 20-10-2021 was issued as to why an amount of sales tax worth Rs. 850,045/- may not be recovered under section 11(2) of the Act and as to penalty under section 33 ibid may not be imposed on account of non-compliance of section 73 of the Sales Tax Act, 1990. The contravention proceedings initiated against the appellant was culminated in passing an assessment order dated 22-11-2021 whereby the alleged demand was adjudged against the appellant without considering written reply supported with documentary evidences inter alia including sales tax invoices, sales tax returns and sales registers (Annex-C) of the supplier namely M/s. Abika Enterprises, Karachi.
3. Feeling aggrieved by the said order, the appellant went in appeal before the learned CIR(A) who instead of discussing the legal side of the case and replying the queries raised before her, through cogent reasoning, utilized her energies to uphold the findings of the learned adjudicating authority and consequently dismissed the appeal vide impugned order dated 25-07-2022 again without considering relevant record/documents. The appellant being discontented with treatment meted out by both the authorities below, has filed the second appeal before this Tribunal assailing the treatment accorded by both the lower fora.
4. Before this Tribunal, learned counsel AR has vehemently contended that the allegations leveled against him are baseless as the alleged goods were procured under the coverage of proper sales tax invoices issued under section 23 of the Act duly incorporated in summary statements and in turn in supplier's sales tax returns for the tax periods in question. Learned AR further argued that alleged supplier has duly discharged sales tax liabilities under section 7 of the Act in its monthly sales tax returns for the periods in question. Further substantiating his contention, learned AR submitted that an inchoate and vague show cause notice against charge of non-compliance of section 73 without providing any detail of the suppliers and their invoices was served upon the appellant. It was forcefully urged by the AR that impugned show cause notice and consequent orders clearly reveal that the same are vague, defective, flawed and legally invalid as it neither contain particulars of the suppliers, detail of invoices and tax periods, etc nor was the detail of the transactions confronted therefore, failed to meet the foundational legal requirements. On merits of the case, learned AR stated that no revenue loss is involved in this case particularly when the supplier has already paid output tax to the national exchequer therefore, demanding adjusted amount of input tax back from the buyer/appellant would definitely amount to double taxation not permissible under law. In support of his stance, learned AR produced copies of sales tax invoices, sales tax returns and sales registers (Annex-C) of the supplier namely M/s. Abika Enterprises, Karachi pertaining to the tax periods of August, 2016 and January, 2017. It was submitted by the learned AR that the appellant holds tax paid invoices and his supplier has also paid output tax thereon and has discharged due sales tax liability in its monthly sales tax returns for the respective tax periods hence, recovery of already adjusted amount of input tax from the appellant merely on some procedural technicalities is illegal and unlawful On the strength of these assertions, learned AR seeks vacation of the impugned orders passed by both the authorities below.
5. On the other hand, learned DR while appearing on behalf of the revenue department has fully supported the impugned orders assailing that the appellant has failed to submit the documentary evidence of making payment to his supplier through banking channel as requisitioned under section 73 of the Sales Tax Act, 1990 however, he failed to put-forth any explanation to justify any deviation from the arguments of the learned AR.
6. After having heard the arguments of both the rival parties and from the bare perusal of the relevant orders as well as relevant provisions of law and record made available before us, we have found that as per sacred statute of book, prime liability to pay sales tax is on the supplier under section 3(3)(a) of the Sales Tax Act, 1990 which is independent to the provisions of section 73 ibid as a supplier has to make payment of sales tax in his sales tax return for a tax period even in case of credit transactions as well. Since deposit of sales tax by a supplier for any transaction is independent to that of payments made by a buyer under section 73 of the Act therefore; in case of non-compliance of section 73 of the Act, no revenue loss is involved and demanding adjusted amount of input tax back from the buyer despite having it deposited by the supplier would definitely amount to double taxation not permissible under any law of the land. It abundantly clear that in the instant case, no revenue loss is involved particularly when the supplier M/s. Abika Enterprises has already paid output tax in the national exchequer against sales tax invoices dated 02-08-2016, 02-01-2017 and 10-01-2017 involving sales tax of Rs. 250,028/-, Rs. 300,237/- & Rs.
299,780/- pertaining to the tax periods of August. 2016 and January, 2017 therefore, demanding adjusted amount of input tax back from the appellant despite having it deposited by the supplier in the government exchequer would tantamount to double taxation. Entitlement of input tax adjustment against tax paid invoices is a statutory right of a registered person which cannot be defeated merely by technical lapses and procedural omissions.
7. There is no dispute between the parties that supplier has deposited output tax against sales tax invoices issued to the appellant however, the appellant was denied of adjustment of input tax only for the reason that he has failed to make payments to his supplier through banking channel in terms of section 73 of the Act. We are of the firm view that bank payments under section 73 of the Act is just a mode of payment embodied therein for the purpose documentation of economy and if the same is not complied with due to some bona fide mistake and ignorance of law, it never entails recovery of amount of tax already paid by supplier vis-a-vis buyer by making corresponding entries of sales and purchases respectively in their sales registers and in turn, in their monthly sales tax returns and appellant has, accordingly, met with the rationale of documentation of economy leaving behind just procedural and technical lapses in violation of statutory provisions of law for which a punitive action can be taken under section 33(16) of the Sales Tax Act, 1990 against the person not complying with the same but recovery of sales tax already paid, despite documentation of impugned transactions, would definitely put a naive taxpayer to hot and cold water. At worst, the department could have proceeded to impose penalty for non-compliance of a procedural formality but not beyond that.
8. Furthermore, there is no allegation of tax fraud against the appellant and input tax adjusted by him was disallowed merely on the basis that while making payments to the supplier, appellant did not adhere to the provisions of section 73 of the Act. There is no denial to the fact that sales tax liability by the both the parties i.e. supplier and buyer was fully paid hence, there is no loss of revenue involved. The appellant in the capacity of a buyer has only committed procedural lapse by not making payments through banking channel therefore, in our considered opinion, there was no justification for the department to deprive the appellant from statutory right of input tax adjustment. The case law relied upon by the learned CIR(A) and also referred by the departmental representative is not of much assistance to the revenue-department as the facts of the instant case are distinguishable from the facts of the referred case. The judgment of Hon'ble High Court rendered in the case titled as "M/s. Strongman Ideal Furniture vs. The Chief Commissioner IR & others" is distinguishable with the facts of the instant case because in the said judgment of Hon'ble High Court, no finding/ruling has been given on the situation wherein no loss of revenue occurred due to fact supplier and buyer had deposited due tax liability into government exchequer hence, there is no loss of revenue involved at all. In nutshell, it is acknowledged that input tax & adjustment thereof is a substantive right of a registered person and cannot be taken away or withheld on mere some technicals grounds & procedural lapses whatsoever. Any such denials of input tax adjustment will tantamount to double taxation not covered by the express provisions of law.
9. Based on what has been stated hereinabove, titled appeal is accepted and the impugned show cause notice and consequent orders of both the authorities below, being devoid of legal substance are hereby set aside.
10. The appeal filed by the registered person is disposed of in the manners as indicated above.