Find a Lawyer

S.T.A. No.525/LB of 2013, decided on 12th May, 2014.

----Ss.11(3), 11(2), 7, 8(1)(ca), 21(3), 23, 33, 34 & 73---Assessment of Tax---Taxpayer contended that S.11(2) of the Sales Tax Act, 1990 would apply only where any person had not paid the tax due on supplies made by him and S.11(3) of the Sales Tax Act, 1990 could be invoked in case of his collusion with the tax officials or due to a deliberate act; that since Show-Cause Notice issued was completely silent with regard to collusion or deliberate act, the very acquiring of jurisdiction was fatal and void ab-initio; that goods were procured under the coverage or proper sales tax invoices issued in terms of S.23 of the Sales Tax Act, 1990 duly incorporated in supplier"s sales registers and summary statements and the suppliers had duly discharged their sales tax liabilities under S.7 of the Sales Tax Act, 1990 in their monthly sales tax returns, the transactions were not hit by the mischief of S.8(1)(ca) of the Sales Tax Act, 1990 as High Court had declared Cl. (ca) of subsection (1) of S.8 of the Sales Tax Act, 1990 as ultra virus of the Constitution; that provisions of S.73 of the Sales Tax Act, 1990 for payments through banking channel had duly been complied with, the refund of input tax against invoices of such suspended or blacklisted person could not be denied and even could not be recovered after insertion of subsection (3) of S.21 of the Sales Tax Act, 1990 wherein it had been categorically provided that input tax shall be allowed if payments were made through banking channel irrespective of the fact that the suppliers units were either blacklisted or their registration had been suspended; and that purchases pertained to the period when suppliers were not blacklisted and subsequent inclusion in the list of suspended unit could not be operated retrospectively---Validity---No notice under S.11(3) of the Sales Tax Act, 1990 alleging collusion or deliberate act on the part of taxpayer had been issued, the very assumption of jurisdiction was illegal and had no lawful authority---Since the very initiation of proceedings was illegal the whole superstructure had no lawful authority and the action of the authorities below was not sustainable in the eyes of law---Other contentions of the taxpayer were legally valid particularly when the First Appellate Authority had accepted the contention of the taxpayer regarding compliance of S.73 of the Sales Tax Act, 1990 and High Court had declared Cl.(ca) of subsection (1) of S.8 of the Sales Tax Act, 1990 as ultra vires of the Constitution---Charge of sales tax upheld by the First Appellate Authority was not sustainable and merits deletion---Show Cause Notice as well as the order of Adjudication Officer was vacated and the impugned order was annulled by the Appellate Tribunal. 2007 PTD 2265; Writ Petition No.3515 of 2012; (2014) 109 Tax 313; 2011 PTD (Trib.) 2679, 2009 PTD (Trib.) 2074 and 2008 SCMR 492 ref. Messrs Wajahat Textile, Faisalabad v. The C.I.R. S.T.A. No.99/LB of 2014 rel. M. Imran Rashid for Appellant. Taimoor Kamal Malik, D.R. for Respondent. Date of hearing: 12th May, 2014.

The titled appeal preferred at the instance of the registered person is directed against the order dated 23-4-2013 passed by the learned Commissioner Inland Revenue(Appeals), Faisalabad. 2. Facts of the case, in brief, are that during the scrutiny of sales tax record/computer data for the tax periods 2008-2011 the following discrepancies were observed:-- (i) That the appellant has adjusted input tax against the invoices of suppliers who had been declared suspended/blacklisted, therefore, input tax amounting to Rs.33,37,683 was recoverable along with default surcharge and penalty; (ii) That the appellant had claimed 100% of output tax whereas as per S.R.O. 647(I)/2007 dated 27-7-2007 he can claim 90% of the input tax. Hence, an amount of Rs.4,23,599 was recoverable along with default surcharge and penalty; (iii) That the registered person has sold wastage but failed to deposit sales tax thereon. Therefore, sales tax to the tune of Rs.1,31,467 along with default surcharge and penalty was recoverable from him; (iv) That the payments were to be made through banking channel as envisaged in section 73 of the Sales Tax Act, 1990 but the appellant had failed to provide any documentary evidence on the basis of which it could be ascertained that the payments were made through banking channel. Hence, sales tax to the tune of Rs.27,54,751 along with default surcharge and penalty was recoverable from the appellant. Besides this SED amounting to Rs.16,330 was also recoverable along with default surcharge and penalty; and (v) That the appellant shall not be entitled to reclaim or deduct input tax paid on the goods or services in respect of which sales tax has not been deposited in the Government Treasury. Hence, an amount of Rs.4,68,342 along with default surcharge and penalty was recoverable under this head. Based on these allegations, proceedings in the instant case were initiated by issuing show cause notice calling upon the appellant as to why sales tax to the tune of Rs.71,15,852 may not be recovered under section 11(2) of the Sales Tax Act, 1990 along with default surcharge and penalty under sections 34 and 33 of the Sales Tax Act, 1990 respectively. The reply furnished by the appellant did not find favour with the Adjudicating Officer who passed the Order-in-Original No.02/2013 dated 31-1-2013. Being aggrieved, the appellant filed first appeal and the learned CIR(A) after considering the arguments allowed partial relief but upheld the charge of sales tax to the extent of Rs.29,10,049 under the following heads:--

This has brought the appellant in further appeal before this forum. 3. The learned A.R. has firstly raised a legal issue against the very initiation of the proceedings under section 11(2) of the Sales Tax Act, 1990 as unjustified. To elaborate his contention he submitted that show-cause notice in the instant case was issued under section 11(2) which provides that the said Section would only apply where any 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 the Act whereas section 11(3) where recovery of sales tax can be adjudged is altogether found missing in the show-cause notice, therefore the whole proceedings are void ab initio. According to the learned A.R., since the very show-cause notice is illegal the assumption of jurisdiction is illegal and all super structure built thereafter have no legal sanctity and merits annulment. He contended that the Superior Courts have time and again observed that validity of the show-cause notice is a precedent condition for acquiring the lawful assumption of jurisdiction, by the Revenue authorities. Since the very show-cause notice is illegal the whole proceedings are illegal and not sustainable. Reliance in this regard was placed on the case-law reported as 2007 PTD 2265 and ATIR"s order bearing S.T.A. No.99/LB/2014 dated 14-2-2014 re: Messrs Wajahat Textile Faisalabad v. The CIR. Further substantiating his contention the learned AR submitted that sections 11(2) and 11(3) are distinct in nature and issuance of separate show-cause notices under these Sections are precedent condition for assumption of jurisdiction. According to him section 11(2) would apply only where any person had not paid the tax due on supplies made by him and section 11(3) can be invoked in case of his collusion with the tax officials or due to a deliberate Act. Since the show-cause notice issued in the instant case is completely silent with regard to collusion or deliberate act on the part of the appellant, the very acquiring of jurisdiction is fatal and void ab-initio. 4. It was further contended that the allegations against the appellant are baseless and frivolous because the alleged goods were procured under the coverage or proper sales tax invoices issued in terms of section 23 of the Sales Tax Act, 1990 duly incorporated in supplier"s sales registers and summary statements and the suppliers had duly discharged their sales tax liabilities under section 7 of the Act in their monthly sales tax returns, therefore, the transactions were not hit by the mischief of section 8(1)(ca) of the Act. Moreover, the Honourable Lahore High Court has declared Clause (ca) of subsection (1) of section 8 as ultra virus of the Constitution in Writ Petition No.3515/12 and the Tribunal has also followed that judgment in its case reported as (2014) 109 Tax 313. Hence the impugned order merits annulment. 5. Similarly the learned A.R. submitted that provisions of section 73 of the Sales Tax Act, 1990 for payments through banking channel had duly been complied with, therefore refund of input tax against invoices of such suspended or blacklisted persons cannot be denied and even cannot be recovered after insertion of subsection (3) of Section 21 wherein it has been categorically provided that input tax shall be allowed if payments are made through banking channel irrespective of the fact that the suppliers units are either blacklisted or their registration have been suspended. Reliance in this regard was placed on the case-laws reported as 2011 PTD (Trib.) 2679 and 2009 PTD (Trib.) 2074. Even otherwise when the learned first appellate authority has admitted the compliance of Section 73 the imposition of penalty was not justified and merits cancellation. 6. The learned A.R. also pointed out that the purchases of the appellant pertain to the period when the alleged suppliers are not included in the list of blacklisted and subsequent inclusion in the list of suspended units cannot be operated retrospectively. Reliance in this regard was placed on the judgment of the Hon"able Apex Court of Pakistan cited as 2008 SCMR 492 whereby it is held that:-- "It is well settled principle of law that the executive orders or notifications, which confer right and are beneficial, would be given retrospective effect and those adversely affect or invade upon vested right cannot be applied with retrospective effect" 7. The learned D.R., on the other hand, opposed the contentions by supporting the reasons assigned by the authorities below. He contended that due relief has already been granted by the learned first appellate authority and no further interference in the impugned order is warranted. 8. After having heard the rival parties we are in consonance with the contentions advanced by the A.R. Perusal of the available record reveals that no notice under section 11(3) of the Sales Tax Act, 1990 alleging collusion or deliberate Act on the part of the appellant has been issued, therefore, keeping in view the judgment of the Tribunal bearing S.T.A. No.99/LB/2014 dated 14-2-2014 cited supra, the very assumption of jurisdiction is illegal and have no lawful authority. It is settled principle that since the very initiation of proceedings was illegal the whole superstructure has no lawful authority and the action of the authorities below is not sustainable in the eyes of law. The other contentions of the learned A.R. are also legally valid particularly when the learned first appellate authority has accepted the contention of the appellant regarding compliance of section 73 and the Honourable Lahore High Court has declared Clause (ca) of subsection (1) of section 8 of the Sales Tax Act, 1990 as ultra vires of the Constitution in the judgment cited supra. Therefore, for all the reasons stated above we are of the considered opinion that the charge of sales tax upheld by the learned CIR(A) is also not sustainable and merits deletion. As such the show-cause notice as well as the order of the Adjudication Officer is vacated and the impugned order is annulled. 9. The appeal is allowed accordingly. CMA/74/Tax(Trib.) Appeal accepted.

Find a Lawyer Near You

Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.