Find a Lawyer

Sales Tax Appeal No.K-479 of 2007, decided on 4th August, 2009.

----Ss.3, 4, 10(2), 29 & 46---Sales Tax Rules, 2004, Rr.28 & 29---S.R.O. 555(I)/2006, dated 5-6-2006---Appeal to Appellate Tribunal---Refund claim---Appellant who was manufacturer of zero-rated supplies and a registered person under the Sales Tax Act, 1990, filed refund claim as per procedure provided under. S.R.O. 555(I)/2006 dated 5-6-2006--On submission of said refund claim the refund receipt issued by the department had confirmed that the claim was complete in all respect; and same was loaded in the Computer System---In proof of proper and complete filing of refund claim a unique identification number was issued to the appellant as provided under R.29 of Sales Tax Rules, 2004---Refund claim was filed on the strength of evidence of input tax, the original Sales Tax Invoices---No further enquiry or audit was required for verification of genuineness of said invoices, as no information was conveyed by the functionaries of department to the appellant within the period of limitation provided under S.10(2) of Sales Tax Act, 1990---However, department not only failed to comply with its obligations under Rr.28 & 29 of Sales Tax Rules, 2004 and S.10(2) of Sales Tax Act, 1990, but also under R.31 of S.R.O. 555(I)/2006 dated 5-6-2006---No scrutiny was made by the department on the facts and grounds submitted by the appellant---Show-cause notice was issued under Ss.2(14), 4, 7, 8(1) & 25 of Sales Tax Act, 1990 and the two forums below had passed void orders on irrelevant and unwarranted provisions of law---Refund case of appellant was declined due to negligence of the functionaries of the department---By the alleged show-cause notice the field forces of the department made interpretation of relevant provisions of Sales Tax law according to .their convenience to cover their own neglect, intention and inaction to flout the clear cut mandate given by the legislature in S.10 of Sales Tax Act, 1990---Adjudication and appellate proceedings in the present case, two forums below were adjudged to be illegal and improper as they patently suffered from various legal infirmities---Impugned orders were set aside and appeal was allowed, with direction to department for refund of the money unlawfully detained by the respondent. 2007 SCMR 818; PLD 1970 SC 158; PLD 1970 SC 173; 1998 SCMR 2268; 2007 SCMR 855 and Muhammad Saleem"s case 1994 SCMR 2213 ref. Afzal Awan for Appellant. Nemo for Respondent.

This order will dispose of Sales Tax Appeal No.K-479 of 2007. This appeal has been filed against Order-in-Appeal No.536 of 2007 dated 22-10-2007, whereby the Order-in-Original No. 75 of 2007 dated 18-6-2007 has been passed considering facts of case of Messrs Rakhani Import and Export Trading Co. was confirmed. The appeal was dismissed through mutatis mutandis application of order passed in the case of one Messrs Chief Fabrics Karachi. No consideration was given at original as well as appellate stage on facts and law of the appellant"s case. 2. That as per reported facts that the appellant is manufacturer of Zero-rated supplies .and a registered person under the Sales Tax Act, 1969. During the Tax period of May, 2006 the appellant purchased/acquired input supplies, and paid Sales Tax thereon. The said purchased goods were used in the manufacture of Zero Rated supplies. The said goods were purchased on payment of Sales Tax and the supplier issued Sales Tax Invoices to the appellant in proof of collection of input Sales Tax leviable thereon under section 3 of the Sales Tax Act, 1990. 3. That the appellant is manufacturer-cum-exporter and his supplies are exports which are taxable as Zero-rated as provided under section 4 of the Sales Tax Act, 1990. The total deduction of input tax, paid by the appellant at, purchase stage was 15% under section 3 ibid, which exceeded the output tax payable under section 4 (i.e. 0%). Hence, the excess amount of input Sales Tax was refundable to the appellant as per law contained in section 10 ibid, and refund was to" be given to the appellant within 30 days (the ceiling fixed under subsection (2) of the section 10 ibid) from the date of filing of the refund claim. 4. That the appellant filed refund claim as per procedure provided under S.R.O. 555(I)/2006 dated 5-6-2006 Chapter-V and Rules 26 to 39. As per Rule 28 the monthly Sales Tax Return was the application for refund claim once all the supportive documents filed including requisite data in the format or software "Refund Claim Preparation Software" "RCPS" under Rule 28. On submission of the refund claim, the Refund Receipt issued by the department confirmed that the claim is complete in all aspects, and the same was loaded in the Computer System. In proof of proper and complete filing of refund claim a unique identification Number (T120506100058) was issued to the appellant as provided under Rule 29 ibid. 5. That the refund claim was filed on the strength of evidence of, input tax, the original Sales Tax Invoices. No further inquiry or audit was required for verification of genuineness of the above said Invoices, as nothing was informed by the functionaries of the respondent to the claimant/appellant within the period of limitation provided under section 10(2) ibid. The Sales Tax paid inputs were, used in the manufacturing of Zero Rated goods, the refund thereagainst was required to be processed/sanctioned through the Fast Track Channel within Fifteen (15) days of the filing of Refund Claim under Rules 28 and 29. The respondents not only failed to comply with their obligations under Rules 28 to 29 read with section 10(2) ibid, but also under Rule 31 of S.R.O. 555(I)/2006, dated 5-6-2006. 6. That the respondent and their functionaries have been neglecting to make payment of refund due since the date of filing of the refund claim under mala fide designs. They issued a Show-Cause Notice dated 2-4-2007 under unwarranted provisions of law i.e., section 10(4) of the Sales Tax Act, 1990 after the expiry of almost Two (2) years of filing of the refund claims as they had ulterior motives to confiscate the amount of lawful refund money of the appellant. The said Show-cause Notice was first time issued against Seven (7) Purchase Invoices involving refund of Rs.8,265 on the supplies made by two suppliers Messrs Hyder Ali and Co. and Messrs Yousuf Zai Trading Company both are the registered persons, acting under section 3 of the Sales Tax Act, 1990. 7. That the objection in the said Show-cause notice was raised as under: (i) "Scrutiny for verification of input tax" and (ii) Exceed Declared output". The Show-cause Notice does not disclose that who exceeded the declared out put appellant/claimant or the supplier, the allegation is vague and show-cause notice is bad in the eyes of law. Moreover nothing was disclosed how verification of input tax was carried, on whether through banks" record regarding above invoices, or else and by whom as per provided under the Sales Tax Act, 1990 and what is the outcome or enquiry was at all neglected to be carried on. 8. That the show-cause notice was issued on the charges for violation of section 4 "Zero Rating",

Section 7 "Determination of Tax Liability", section 8(1) "Tax Credit not allowed, section 10 "Excess amount to be refunded", section 26 "Return" and section 2(14) Definition of "Input Tax". Which alleged/charged sections of Sales Tax Act, 1990 have no nexus with the facts of the present case under objections of Scrutiny for verification of input tax paid by the supplier in the national exchequer and Supplier"s Declared output Exceeds. 9. That the points for lawful determination under the present appeal, as pressed by the counsel for the appellant are as under:--

(i) Whether or not the appellant/claimant" was entitled for refund within period of 30 days

(ii) Whether or not the functionaries of the respondent were under obligation to verify the payments of input tax within stipulated period under section 10

(iii) Whether supplier is responsible, for non-observance of mandate of Sales Tax Act, 1990 on his part, or the bona fide claimant of refund has to suffer for the same

(iv) Whether or not charges for violation of sections 2(14), 4, 7 8(1), 10, 26 of the Sales Tax Act, 1990, are warranted on the objections "Scrutiny for verification of input tax" or "Exceed Declared output"

(v) Whether or not Standing Order Nos. l to 7 bind the appellant/claimant to provide documents of the supplier for removal of objections

(vi) Whether or not show-cause notice under pending refund claim is void being without jurisdiction under section 11(4) or 36 of the Sales Tax Act, 1990

(vii) Whether Order-in-Original and Order-in-Appeal, passed on consideration of facts of others and made mutatis mutandis applicable are void and needs to be annulled 10. That learned counsel for the appellant Mr. Muhammad Afzal Awan Advocate advanced his arguments at length touching all the crucial aspects, which are reproduced hereunder:--

(i) That the refund was liable to be made within the period of 30 days of filing of return as provided under the legislative mandate contained in section 10(2) of the Sales Tax Act, 1990 and as well as Rules 27 and 31 of the S.R.O. 555(I)/2006. Both the provisions of law read as under:--

Section 10 of the Sales Tax Act, 1990.

"(2) Notwithstanding anything contained in subsection (1) the input tax incurred shall be refunded not later than thirty days of filing of return in such manner and subject to such conditions as the Board may by Notification in the Official Gazette, specify".

S.R.O. 555(I)/2006 dated 5-6-2006. "Rule 31. Scrutiny and processing of refund claims filed by the manufacturer of specified goods. (1) Notwithstanding anything in rule 29, refund of sales tax paid inputs used in the manufacture of goods, local supply, of which has been zero-rated, shall be processed and sanctioned through the Fast Track Channel within fifteen days from the date of filing of refund claim".

(ii) That the payment of input tax has been duly acknowledged by the supplier in proof whereof he issued Sales Tax Invoices, which were submitted to the respondents along with the refund claim. No further scrutiny was required, warranted or even done by the respondents. The supplier is a registered persons duly authorized as Collector of Sales Tax under section 3 of the Sales Tax Act, 1990. The functionaries of the respondent have access to sales tax returns and

(ii)(sic) That non co-operation or non-observance by the supplier is punishable under section 33 ibid. But there is no law which binds the appellant/claimant/buyer to supply the documents of others which are not within his custody. On his failure to do so be punished due to the negligence of The supplier or the Sales Tax functionaries.

(iii) That the appellant/purchaser has no access to the private/ business record and documents of the supplier. Nor the supplier is ready to allow his buyer to access his personal record or documents. The respondents have jurisdiction to access or call the record from the supplier under section 25 ibid. The respondents not only defaulted on this account but also rejected the refund claim thereby awarding punishment to the claimant/ buyer.

(iv) That above in action, delay and irresponsible behaviour on the part of the Sales Tax functionaries is a clear cut act of gross negligence and miscarriage of justice.

(vi)(sic) That under the legislative mandate contained in section 10(2) of the Sales Tax Act, 1990 read with Rules 27 and 31 of the S.R.O. 555(I)/2006, the appellant/claimant is entitled for refund on compliance of his obligation set therein. But in no case he is liable for penalty of forfeiture of his claim of refund due to any act of commission, omission or violations made by the supplier or in action or negligence in discharge of duty by functionaries of the Sales Tax

(vii) That the Sales Tax officers are not entitled for bonus on their own negligence in performance of their duties, in action on their part. They are even not authorized under the law or entitled to burden the buyer or to cause him loss by forfeiture of his lawful refund money on the plea that the supplier acted, defaulted, defrauded or neglected to supply the requisite data.

(viii) That the show-cause notice was issued for the unwarranted allegations for violation of, sections 2(14), 4, 7, 8(1), 10 and 26 of the Sales Tax Act, 1990. The allegations are only two (1) "Scrutiny for verification of input tax" and (2) Exceed Declared output", the same are not covered under the above alleged sections. The show-cause notice is void, unwarranted by facts and law and needs to be vacated.

(ix) That the superstructure built on such a void show-cause notice is also void. Both Order-in-Original and Order-in-Appeal need to be annulled. It is well-settled law that---when the basic order is without lawful authority, the super structure built on it would have fallen on the ground---relied upon citation 2007 SCMR 818 (m). Secondly it is well-settled law by the apex Court that each and every case needs to be decided on its own facts and law. This principle of law needs to be strictly observed in the interest of natural justice and fair play in this case also.

(x) That the allegations for violation of the said Standing Orders bearing Nos.1 to 7, on part of the appellant are unwarranted. In fact the said standing orders contain authorization given by the Federal Board of Revenue to the officers of Sales Tax to over rule the objection on scrutiny of the relevant prescribed document.

(xi) That the preamble of Standing Order No. 1 of 2007 (note Standing Order Nos. 2 to 7 are amendment therein) reads as under: --

"Standard procedure for over-ruling system objections on Sales Tax refund claims---The Board has issued instructions vide letter No.1(3)CEE/C4 (pt.) dated 31-10-2006 for over-ruling of different objections raised by the system". .

(xii) That the respondents acted in a non-bona fide manner it is further stated in the paid Standing Order that "In order to give effect to these instructions", following standard procedure is issued for manufacturing-cum-exporters, in order to avoid any discretion, delay and to ensure that refund is issued only against valid documents. For the objections specified in column 2, the action specified in column 3 shall be taken and the same shall also, be produced in writing in the note sheet since while submitting refund claim to officer-incharge.";

(xiii) That the appellant is entitled for Penal Charge for refund delayed by the respondents, vide "mandate contained in section 67 of the Sales Tax Act, 1990. Which authorizes the delayed refund surcharge at 6% in case of delay in refund (not made) within the period of limitation as contained in section 10(2) of the Sales Tax Act, 1990 as well as Rule 31 of the S.R.O. 555(I)/2006.

(xiv) That the show-cause notice is unwarranted under the law as the mandate in section 11, does not cover the cases of section 10 of the Sales Tax Act, 1990, by any stretch of any imagination. Law reads as under:--

"Where a person who is required to file a tax return failed to file the return for a tax period by the due date or pays on amount which, for some miscalculations is less than the amount of tax actually payable, an officer of sales tax shall, after a notice to show-cause to such person make an order for assessment of tax.."

(xv) That show-cause notice has been issued under section 11, which is altogether void. Because section 11 deals with only these cases only where (a) A person who is required- to file a tax return failed to file the return (b) He. pays an amount which, for some miscalculations is less than the amount of tax actually payable (c) The officer of sales Tax shall issue a notice to show-cause, and (d) Make an order for assessment of tax (e) But is not authorized to reject the refund claim.

(xvi) That another provision of law for issuance of show-cause notice, in the Sales Tax Act, 1990, is section 36 which deals only with recovery of tax not levied or short-levied or erroneously " refunded. In the present case the refund is still awaited, nothing was refunded and there is no issue for short or non-levy under the facts of the present case. No show-cause no .ice is warranted under section 36 of the Sales Tax Act, 1990 in the present case.

(xvii) That the Collector (Appeals) rejected the impugned case without applying his judicial mind; he decided a case of another registered person and such order was applied to the case of the appellant; Likewise the Order-in-Original was also passed on consideration of fact of another person and refund claim of the appellant was rejected unlawfully on mutatis mutandis application thereof. The rejection of refund was due to negligence and non-bona fides on part of the respondents.

(xvii) It is now a well-settled law that every Tribunal is duty bound to decide the controversy between the parties after judicial application of mind in view of Article 4 read with 5(2) of the Constitution. Vide principle of law laid down by the Honourable Supreme Court in cited cases PLD 1970 SC 158, PLD 1970 SC 173 and 1998 SCMR 2268.

(xvi) That the learned Collector Appeals as well as the adjudication officer decided the controversy without perusing the facts and law of the individual case. The impugned judgments are not sustainable in the eyes of law as the same were decided in violation of the law laid down by the Supreme Court in various judgments including cited as 2007 SCMR 855.

(xvii) That the respondents violated the settled principle of law that each and every case would be decided on its own peculiar circumstances and facts (Relied upon Muhammad Saleem"s case 1994 SCMR 2213). The judgments of the Honourable Supreme Court are binding to be obeyed, followed by all the Tribunals, forum functionaries and bureaucratic set up of the State under Article 189 of the Constitution of Islamic Republic of Pakistan, but the respondent did not rather acted in defiance.

(xviii) That the objection in the said show-cause notice was (i) "Scrutiny for verification of input tax" and (ii) Exceed Declared output". The allegation No. (ii) is vague as it does not disclose who exceeded the declared out put appellant/claimant or the supplier Moreover nothing was disclosed how the verification of input tax was carried on through banks" record regarding above invoices, or else.

(xix) The show-cause notice was made on the charges for violation of section 4 "Zero Rating", section 7 "Determination of Tax Liability", section 8(1) "Tax Credit not allowed", section 10 "Excess amount to be refunded", section 26 "Return" and section 2(14) Definition of "Input Tax ". Which all the alleged/ charged sections of Sales Tax Act, 1990 have no nexus with the proposition of the present case "Scrutiny for verification of input tax" and Exceed Declared output".

(xxi) That no discrepancy was ever pointed out by the Risk Based Refund Analysis System "RRAS" to the appellant/claims as provided Sales Tax Refund Rule 37 under S.R,O. 555(I)/2006 dated 5-6-2006. Any violation under section 37 ibid if attributable is the violation on part of the functionaries of the respondent but not to the appellant in any case.

(xxii) That the judgments passed by the respondent do not meet the criteria of section 24A of the General Clauses Act, 1897 as well as section 45 Of the Sales Tax Act, 1990. Moreover the adjudication in the present case was without power as provided under section 45 of the Sales Tax Act, 1990, hence void.

(xxiv) That the respondents have been claiming that the amount or refund was rejected for Scrutiny for verification. But the respondents did not disclose the result of scrutiny and rejected the claim which offends norms of natural justice.

(xxv) That the respondents claim that refund was rejected because the appellant has failed to produce documents as required under Standing Order No.1 of 2007 dated 19-1-2007. The demand of documents and rejection of refund is unlawful as there is no Standing Order, STGO or Provision of Law which binds the claimant to produce the documents which are not his own or within his custody.

(xxvi) That the respondents claim that it is also worth mentioning that name of Messrs Hyder Ali and Company bearing Sales Tax Registration No. 1200848200146 is still in the list of temporary blockage list dated 6-1-2009 issued by the Collectorate of Sales Tax and Federal Excise (Enforcement) Karachi. The allegation is worthless because at the time Taxable Supply took place the supplier was not blocked. The blockage of supplier does not disqualify the claimant to claim his excess input under section 10 ibid.

(xxvii) That subsection (4) of section 10 of the Sales Tax Act, 1990 is not applicable under the circumstances of the present case. Because the functionaries of the respondent neither chose nor carried out audit, investigation within the stipulated time of 30 days as provided under subsection (2) of section 10 ibid. Even the period of maximum limitation for conduct of enquiry was not obeyed by the Sales Tax functionaries in this case.

(xxviii) That the supplier is bound under the mandate of Sales Tax Act, 1990 as to file return of his sales with the functionaries of the respondent with all related data in proof of collection of Sales Tax made by him and its deposit in the national exchequer. The appellant/buyer/claimant is no where responsible under the law for the act of commission or omission on part of the supplier. No punishment of forfeiture of refund due can be given to the buyer for non-compliance of the supplier.

(xxix) That it is duty of the respondent to audit the data, collect required record from the supplier under the authority of section 25 of the Sales Tax Act, 1990. Whereas the appellant/ buyer/claimant has no such authority. Section 25 ibid reads as under: --

"25. Access to record, documents, etc. (1) A person who is required to maintain any record or document under this Act or any other law shall,, as and when required by the an officer of Sales Tax , produce record or documents which are in his possession or control or in ,possession or control of his agent, and where such record or documents have been kept on electronic data, he shall allow access to such officer of Sales Tax and use of any machine on which such data is kept." 11. That the case was fixed for final hearing as on 2-6-2009, the respondent did not attend the case. However opportunity of being heard was provided/given to the respondents filed their comments as on 26-1-2009 which are as under:--

(i) Messrs Salfi Textile Mills Limited, has filed sales tax refund claim of Rs.1,174,150 for the tax period May, 2006 vide claim No.T120506100058 dated 22-8-2006. After processing of the claim an amount of Rs.1,165,885 has been sanctioned to the claimant whereas Rs.8,265 has been deferred against the objection "Scrutiny of verification of Input Tax " raised against the invoices of Messrs Hyder Ali and Co. and "Exceed Declared Output" against the invoices of Messrs Yusuf Zai Trading Company. Therefore, a show-cause notice was issued to the claimant on 2-4-2007 for the deferred amount of Rs.8,265 involved against the sales tax invoiced of Messrs Yousuf Zai Trading Company has been allowed for processing and sanctioned to the claimant whereas Rs.6,720 has been rejected on the ground that the appellant has failed to produce documents as required under Standing Order No.1 of 2007 dated 19-1-2007 (Annexure-A) vide Order-in-Original No. 75 of 2007 dated 12-6-2007.

(ii) Appellant also failed to produce relevant documents as required under Standing, Order No. 1 of 2007 dated 19-1-2007 and para. (iv) of Standing Order No.7 of 2007 dated 15-11-2007 (Annexure-B).

(iii) It is also worth mentioning that name of Messrs Hyder Ali and Company bearing sales tax registration No.1200848200146 is still in the list of temporary blockage list dated 6-1-2009 issued by the Collectorate of Sales Tax and Federal Excise (Enforcement) Karachi (Annexure-C). 12. Heard Mr. Afzal Awan Advocate counsel for the appellant. The perusal of case record shows that show-cause notice was issued for violation of various sections of Sales Tax which have no nexus with the facts of the case. Moreover the judgments on consideration of facts of some other parties were applied mutatis mutandis on the appellant"s case both at original stage as well at appellate stage. These discrepancies in the adjudication proceeding involved substantive illegalities and make the impugned orders void in the eyes of law and in disregard to the principle of law enunciated by the apex Court that each and every case should be decided on its own merits. 13. It is further observed that no scrutiny was made by the respondents on the facts and grounds submitted by the appellant. It is also observed that the show-cause notice was issued under sections 2(14); 4, 7, 8(1), "25 and the two forums below have passed void orders on irrelevant and unwarranted provisions of law. Moreover the refund case of the appellant was declined due to negligence of the functionaries of the respondent. By the alleged show-cause notice the field forces of the respondent made interpretation of relevant provisions of sales tax law according to their convenience to cover their own neglect, inattention, and inaction to flour the clear cut mandate given by the legislature in section 10 of the Sales Tax Act, 1990. 14. In the above circumstances, the adjudication and appellate proceedings in the subject case before two forums below are adjudged to be illegal and improper as they -patently suffer from various legal infirmities. As such impugned orders are set aside and the appeal is allowed with directions to the respondent for refund of the money unlawfully detained by the respondent since May, 2006. The appeal is accordingly allowed. H.B.T./115/Tax(Trib.) Appeal allowed.

Find a Lawyer Near You

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