MUHAMMAD HASHIM KHAN KAKAR, CJ. This Sales Tax Reference Application has been filed under section 47 of the Sales Tax Act, 1990 (hereinafter referred to as "the Act") as amended by the Tax Laws (Amendment) Act, 2024 ('Amendment Act') against the order dated 08.01.2024, passed by the learned Appellate Tribunal Inland Revenue Quetta Bench Quetta (`ATIR'). The applicant/Commissioner of Inland Revenue, Zone-1, Quetta ('Commissioner') has proposed following questions of law and mixed questions of law and facts emanating from the order STA No.599/KB/2023 dated 08.01.2024, passed by the ATIR under section 46 of the Act: i Whether on the fact and in the circumstances of the case the Learned Appellate Tribunal was justified in holding that the RIP was not under legal obligation to discharge their liability to pay sales tax in accordance with sections 3 and 3(1A) of the Sales Tax Act, 1990? ii. Whether the business receipts declared in Income Tax return by the registered person has been rightly treated sales/supplies for the purpose of sales tax by the assessing officer? iii. Whether on the facts and circumstances of the case, the Appellate Tribunal was justified to vacate the orders of the authorities below only on the basis of contract agreement with Frontier Corps Baluchistan and declaration of exempt supplies furnished before them by the registered person? iv. Whether on the facts and circumstances of the case, the Appellate Tribunal was justified to vacate the order of the CIR (A) and deleting the total tax demand on the basis of exemption i.e. supplies of fresh ration/Meat and Chicken/Feed of Animal, whereas, the total tax demand was created against supplies of taxable goods amounting to Rs.133,823,894/- which the RIP himself declared during the tax period from July 2020 to June 2021 and adjusted input tax of Rs.22,750,062/- against output tax liability, which was neither discussed nor addressed by allowing the appeal of the R/P?"
2. Brief facts leading to the instant reference application are that the registered person's ('RP') case was subjected to desk audit for the tax periods from July-2019 to June-2021. During the course of desk audit the learned Additional Commissioner Inland Revenue (`ADCIR') found several discrepancies like late filing of sales tax returns, suppression of supplies and claim of inadmissible input tax. The learned ADCIR thus issued show cause notice to the RP/respondent under sections 11(1) and (2) of the Act on 10th March, 2023. In view of no compliance from the RP/respondent the learned ADCIR issued reminders, which were responded by way of adjournment applications only and issues confronted through show-clause notice remained unattended. The learned assessing ADCIR thus proceeded to pass Order-in-Original No.123/2023 dated 27.06.2023 under section 11(2) of the Act creating a tax demand of Rs.61,728,955/- including sales tax, further tax, default surcharge and penalties. Being aggrieved and dissatisfied with the order of the ADCIR the RP/respondent filed appeal under section 45B of the Act before the learned Commissioner Appeals ('CIRA') assailing the order in original on various legal and factual grounds. During the course of appellate proceedings before the CIRA, the learned counsel of the RP/respondent pleaded that adequate opportunity of hearing was not provided by the ADCIR. The learned counsel further stated that the RP/respondent has supplied vegetables, ration, household items, fresh fruits etc. to the Frontier Corps, Balochistan, which were exempt under the provisions of the Act and that no inadmissible input tax was claimed by the RP/respondent. The learned CIRA asked the counsel of the RP/respondent to furnish supporting documents regarding exempt supplies and claim of input tax. The learned counsel of the RP/respondent however failed to provide said evidences to the learned CIRA. The learned CIRA therefore rejected the appeal of the RP/respondent with following observations: "11. Having discussed the extent and manner in which the impugned Order-in-Original has been passed against the respondent taxpayer, I am inclined to agree with the treatment meted out by the learned assessing officer as the appellant neither had sufficient documentary evidences available with him to establish his stance of exempt supplies nor did he offer any justifiable explanation regarding contentions so thus raised by the learned assessing officer in the impugned ONO or by the attending DR during the course of hearing. As the appellant was deliberately avoiding the furnishing of requisite documents/details during the course of original proceedings, as well as in the instant appellate proceedings, being left with no alternate, the assessment under section 11(2) of the Act was ultimately completed, as per the findings from scrutiny of case record for the impugned tax periods as proposed in the Show-Cause Notice, I, therefore, find no legal infirmity vis-a-vis the assessment framed by the department under section 11 of the Act. Therefore, in the given circumstances, the impugned ONO for the impugned tax periods is as per law and the action of the learned officer is accordingly Confirmed/Upheld."
3. Being aggrieved with the order of the learned CIRA the RP/respondent filed appeal before the learned ATIR under section 46 of the Act. The learned ATIR after hearing arguments of both the sides allowed appeal of the RP/respondent vide order STA No.599/KB/2023 dated 08.01.2024 accepting arguments of the learned counsel for the RP/respondent with following findings: "4. Arguments heard and record perused. Admittedly, in the case in hand, huge tax demand was created by the adjudicating officer as per order-in-original supra by ignoring this material aspect the registered person/appellant made supplies of fresh ration/Meat and Chicken/Feed for Animals to Frontier Corps Balochistan, which food items duly falling within the ambit of 6th Schedule to the Act, hence are exempt from sales tax and this very fact also stands established from the copy of ' Contract Agreement Meat - FY 2019-20 BR executed between the parties i.e., between the registered person and Mr. Furqan Moazzam Brigadier DIGFC.
5. The stance taken by learned AR regarding exempt supplies made by the registered person/appellant to Frontier Corps Balochistan is further strengthened from the copy of income tax deduction certificate issued by Mr. Adnan Naseer, Accounts Officer HQ Frontier Corps Balochistan wherein is has been certified that the registered person/appellate made supplies of fresh ration/Meat Chicken/Feed for Animals, which food items due to falling within the ambit of 6th Schedule to the Act are exempt from sales tax deduction.
6. In view of above factual position, we have come to the conclusion that whole order-in-original has been based merely on guess work having no legal sanctity. We are also of the considered opinion that due to supply of exempt food items to Frontier Crops Balochistan the registered person/appellant was not required to pay the sales tax on such transactions as the provisions of the Section 3 of the Act are not attracted. The most appreciable fact, which is brought before us is that the input tax pertaining to the purchases of products filing under 3rd Schedule of the Act has never been adjusted and that the appellant surrendered the said input tax as the supplies were exempt. With regard to allegation of late filing of sales tax returns, the stance taken by learned AR that registered person/appellant is not habitual late filer of sales tax returns but in some tax periods the delay was not intentional is forceful as no such allegation of habitual late filing of sales tax returns has been leveled by the departmental authorities. In view of the foregoing discussion the orders passed by both the authorities below being not sustainable under the law are hereby vacated by way of acceptance of instant appeal. We order accordingly."
4. The applicant/Commissioner, being aggrieved with the findings of the learned ATIR has placed above questions of law and mixed questions of law and facts before this Court.
5. Learned counsel for the applicant/Commissioner assailed order of the learned ATIR and argued that the RP/respondent failed to respond to notices/reminders issued by the learned ADCIR and provided requisite evidences; hence order in original was passed. Further during appellate proceedings before the learned CIRA the learned counsel of the RP/respondent failed to substantiate his claim with supporting documents/evidences despite multiple opportunities provided. The learned counsel for the applicant/Commissioner therefore, contented that both the learned ADCIR and the CIRA were justified to draw adverse inference and pass order in original and order in appeal respectively. The learned counsel for the applicant/Commissioner assailed the order of the learned ATIR on the ground that the learned ATIR has ignored the non-compliant attitude of the RP/respondent both before the ADCIR and the CIRA, which were the forums to examine evidences/documents. Further the leaned ATIR has agreed with the counsel of the RP/respondent on the basis of two documents from the Frontier Corps Balochistan, which should have been presented before the learned ADCIR or before the learned CIRA. The learned counsel also agitated against findings of the learned ATIR regarding late filing of sales tax returns and reiterated that the RP/respondent is habitual late filer. The learned counsel also agitated against findings of the learned ATIR regarding claim of inadmissible input tax. The learned counsel contended that the RP/respondent has been claiming inadmissible input tax notwithstanding the fact that as per statement of the RP/respondent before the learned ATIR entire supplies fell either under 3rd Schedule or under 6th Schedule of the Act. In support of his contention the learned counsel presented copy of sales tax return for the month of March 2020, wherein input tax of Rs.9,133,377/- has been claimed and carried forward. The learned counsel presented copy of sales tax return for the month of June 2021 wherein input tax of Rs.22,750,062/- has been claimed and adjusted against output tax. The learned counsel for the Applicant/Department finally prayed that the questions proposed may be decided in favour of the Applicant/Department and order of the learned ATIR may be vacated and orders passed by the learned ADCIR and the learned CIRA may be restored.
6. On the other hand learned counsel for the RP/respondent supported the order of the learned ATIR. The learned counsel contended that the order of the learned ATIR is based on valid reasoning and thorough discussion regarding defects in the orders passed by the learned ADCIR and the learned CIRA. The learned counsel further stated that RP/respondent has made supplies of only exempt food items to Frontier Corps Balochistan which fell under the 6th Schedule of the Act, The learned counsel denied alleged claim of input tax of Rs.9,133,377/- and Rs.22,750,062/- in the tax Periods of 2019-20 and 2020-21 respectively against various taxable items. The learned Counsel for the RP/respondent finally prayed for dismissal of Reference Application filed by the Applicant/Department.
7. We have heard learned counsel for the parties, gone through the relevant provisions of law, perused the orders of the ADCIR, CIRA and the ATIR and also perused the available record. We have also carefully examined the finding in the said orders. The learned ADCIR and the learned CIRA have drawn adverse inferences in view of non-compliant attitude of the RP/respondent. The learned ATIR has however agreed with the counsel of the RP/respondent on the basis of two documents presented, which showed that the RP/respondent has made exempt supplies covered under the 6th Schedule of the Act. The learned ATIR has straight away ignored the non-compliant attitude of the RP/respondent both before the ADCIR and before the CIRA. The learned ATIR has held that the RP/respondent has made two sets of supplies i.e. supply of food items falling in 6th Schedule and taxable supplies covered under the 3rd Schedule. The learned ATIR has however ignored the fact that if entire supplies of the RP/respondent comprised of exempt supplies covered under the 6th Schedule to the Act and 3rd Schedule items where entire sales tax is collected from the importer/manufacturer which is then passed on to the end consumer then how the RP/respondent has allegedly claimed input tax of Rs.9,133,377/- and Rs.22,750,062/- in the tax periods of 2019-20 and 2020-21 respectively in Annexure A. The learned ATIR has accepted stance of the RP/respondent that said input tax was never claimed or adjusted.
8. The learned ADCIR has based his entire decision on three factors i.e. discrepancies between the income tax returns and the sales tax returns, claim of inadmissible input tax in Annexure-A of the sales tax return and non-compliant attitude of the RP/respondent. The action of the learned ADCIR regarding comparison of data in income tax returns and sales tax returns cannot be endorsed because said returns are filed in pursuance of two separate laws i.e. the Income Tax Ordinance, 2001 and the Sales Tax Act, 1990. The reporting methods and scheme of law in the said Ordinance and Act are different from each other. Therefore, returns filed under the said laws cannot be compared as such to find a discrepancy. Any inference drawn on the basis of such comparison is both illogical and unlawful. This view is supported by the case laws reported as 1990 PTD 1088 (AJK HC) and 2004 PTD 868 (SHC). The honorable AJK High Court held that: "These documents relating to the income tax, in our views, cannot be taken as a valid evidence for the purposes of sales tax.
The reason is obvious the income tax is always levied and collected on the basis of income but so far as the sales tax is concerned, it is always to be levied on the goods manufactured and sold by the manufacturers." The honorable Sindh High Court held that: "Discovering certain cash credit entities in the books of the appellants without any nexus to taxable supplies cannot be treated as amount received from supplies and therefore is not liable to sales tax."
9. Now coming to the second allegation of the ADCIR that the RP/respondent has claimed input tax of Rs.9,133,377/- and Rs.22,750,062/- in the tax periods of 2019-20 and 2020-21 respectively we feel that neither at the time of original proceedings nor before the CIRA or before the learned ATIR the related facts have been threshed out. At the time of original proceedings and before the CIRA the RP/respondent has failed to provide conclusive evidences that no such input tax was claimed as per his contention. The learned ATIR has accepted denial of the RP/respondent regarding claim/adjustment of said input tax without any evidence brought on record or discussed in the order of the ATIR. If entire supplies the RP/respondent comprised of exempt supplies covered under the 6th Schedule to the Act and of 3rd Schedule items where sales tax is collected from the importer/manufacturer which is then passed on to the end consumers, then the RP/respondent is not entitled to claim/adjust any input tax in Annexure A. However, as per sales tax returns for the months of March 2020 and June 2021 input tax of Rs.9,133,377/- and Rs.22,750,062/- has been claimed by the RP/respondent in the tax periods relating to 2019-20 and 2020-21 respectively which indicates that RP/respondent has also made supplies other than those covered under the 3rd and 6th schedules of the Act. This fact needs to be threshed out and the RP/respondent has to prove with corroborative evidences that said input tax was not claimed/adjusted against output tax and there were no supplies other than those covered under the 3rd and 6th schedules of the Act.
10. In the light of above discussion it is evident that the facts/evidences relating to claim of input tax of Rs.9,133,377/- and Rs.22,750,062/- as well as supplies other than those covered under the 3rd and 6th schedules of the Act are neither threshed out during the assessment proceedings by the ADCIR nor during the appellate proceedings before the learned CIRA. The learned ATIR has accepted stance of the RP/respondent that no input tax has been claimed with the following findings: "3 ........ It is also the contention of the learned AR that the input tax pertained to the purchases of products falling under 3rd Schedule of the Act, against which the registered person/appellant never adjusted the said input tax and also did not get the refund, therefore, there is no loss of revenue and it is pertinent to note that registered person/appellant surrendered the said input tax as the supplies were also exempt, therefore, the claim of input by the registered person/appellant also becomes irrelevant."
11. The learned ATIR has just reproduced contention of the learned counsel of the RP/respondent and endorsed the same without any corroborative documents brought on record or giving any categorical findings. These findings of the learned ATIR are not sustainable in view of sales tax returns for the tax periods March 2020 and June 2021 presented by the counsel of the Applicant/Department. If entire supplies of the RP/respondent were covered under 3rd and 6th Schedules of the Act and there were no other supplies, then how such input tax may be claimed by the RP/respondent.
12. In the light of above defects in the orders passed by the learned ADCIR and the learned ATIR and in the interest of justice we deem it appropriate to vacate orders of the learned ADCIR, CIRA as well as ATIR and to remand back the case to the officer holding lawful jurisdiction over the RP/respondent for re-examining the facts and to provide an adequate opportunity of being heard to the RP/respondent. The learned officer is directed: a) To provide proper and adequate opportunity of being heard to the RP/respondent. b) To examine the sales returns for the tax periods involved in the light of above discussion and case laws, and if warranted then invoke the provisions of sections 25 and 11E of the Act for conducting audit and recovering short paid tax. c) To examine documentary evidences/explanations of the RP/respondent and then come up with judicious decision as per provisions of the Act.
13. The RP/respondent is also directed to appear before the learned officer and to provide explanations and documentary evidences regarding late filing of sales tax returns and claim of input tax so that the learned officer may reach at a judicious decision.
14. The concerned Zonal Commissioner Inland Revenue is also directed to guide and supervise the officer in strictly following the directions given supra to ensure making a judicious decision with logical application of mind after providing adequate opportunity of being heard to the RP/respondent.
The reference application is disposed of accordingly.