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S.T.A. No.346/LB of 2004, decided on 10th January, 2008.

----Ss.2(37) & 45-A---Tax fraud---Recovery of refund---Jurisdiction--Department detected that registered person had received refund against the fake and flying units in violation of S.2(37) of the Sales Tax Act, 1990 and the registered person was called upon to explain as to why the said amount should not be recovered along with additional tax and penalties---Registered person pleaded that matter had been reopened by the department which was not within the competence of the Deputy Collector rather under S.45-A of the Sales Tax Act, 1990 the Federal Board of Revenue or the Collector was competent to reopen the matter---Validity---Contention of the appellant/registered person that only Central Board of Revenue or the Collector was competent to reopen the matter was not tenable for the reason that the refund was sanctioned to a person on provisional basis subject to subsequent audit and scrutiny---Such was not a matter of reopening of the past and closed transaction rather it was an exercise envisaged by Sales Tax Act, 1990 for scrutiny and auditing the refund sanctioned to the registered persons.

----Ss.36, 7 & 10---Recovery of tax not levied or short-levied or erroneously refunded---Determination of tax liability---Recovery of refund received against fake and flying invoices---Appellant contended that allegations of getting refund against fake and flying invoices was baseless because at the time of sanctioning of refund all the documents were examined by the department whereafter the refund was ordered---Validity---Supplier of the appellant was not involved in any manufacturing process, therefore, it was not in a position to supply any taxable goods---Invoices issued by the said unit were rightly rejected by the department---Appellant also failed to produce any tangible evidence to show that the raw material was actually transported from the supplier unit to the appellant"s unit---According to S.7 of the Sales Tax Act, 1990 the valid invoice would be that invoice against which the actual supply of the material was witnessed---Refund only could be claimed against an amount which had been deposited by the supplier in the national exchequer and when no such amount was deposited by the supplier then the appellant was not entitled to get the refund---Record proved by overwhelming evidence that the supplier was adjudged to be a fake unit by the competent authority---All transactions made with such unit were sham transactions having no sanctity in the eyes of law---Order passed by both the lower forums did not suffer from any legal infirmity and were based upon a sound appreciation of record which were maintained by the Appellate Tribunal in circumstances. Muhammad Akram Nizami for Appellant. Saleem Akhtar, Superintendent for Respondent. Date of hearing: 9th January, 2008.

This Sales Tax Appeal is directed against an order-in-appeal dated 23-2-2004 recorded by Collector (Appeals), Faisalabad whereby Order-in-Original dated 12-11-2002 passed by the Deputy Collector (Adjudication) was upheld. 2. Facts of the case briefly stated are that the refund claim of Messrs Arzoo Textile Mills, Faisalabad for the month of July, 1999 was audited wherefrom it was detected that the registered person had received refund of Rs.500070 against the fake and flying units in violation of section 2(37) etc. of the Sales Tax Act, 1990 whereupon the registered person was called upon to explain as to why the said amount should not be recovered from him along with tax and penalties. 3. The show-cause notice was contested by the registered person alleging that no refund against the invoices of any fake and flying unit was received, therefore, the claim of the department was baseless. Conversely the department had taken a plea that Messrs Rashid Textile Lahore was a fake unit against whom the competent authority vide Order-in-Original No. 13 of 2001 dated 18-4-2001 adjudged that the invoices issued by the said unit were fake and invalid, therefore, the refund claimed and sanctioned in favour of Messrs Arzoo Textile Mills was recoverable. 4. The learned adjudicating officer after examining the contentions of the parties as well as the record held that Messrs Rashid Textile was involved in issuing. fake and invalid invoices and did not deposit any amount in the national exchequer received from the buyers, therefore, held that Messrs Arzoo Textile Mills is liable to pay the refund received against the invoices of Messrs Rashid Textile Mills Lahore and directed that an amount of Rs.4,14000 be recovered from the registered person along with additional tax and penalty equivalent to 30% of the principal amount. The order was assailed by the registered person before the Collector (Appeals), Faisalabad, who also concurred with the findings of the Deputy Collector (Adjudication) and dismissed the appeal. Hence this appeal. 5. It is contended by the learned counsel for the appellant that the allegations of getting refund against fake and flying invoices charged against the registered person is baseless because at the time of sanctioning of refund all the documents were examined by the department whereafter the refund was ordered and secondly that the matter has been reopened by the department which was not within the competence of the Deputy Collector rather under section 45-A of the Sales Tax Act, 1990 the Board of Revenue or the Collector is competent to reopen the matter. It is further contended that the appellant had paid the sales tax to the supplier at the time of purchase of goods from him, therefore, the appellant cannot be deprived of his legal right of having the refund of the amount paid to the supplier. Lastly it is contended that the appellant did not violate any provisions of Sales Tax Act, therefore, the show-cause notice is invalid: It is prayed that the orders passed by the adjudicating be set aside by accepting the appeal. 6. On behalf of the department it is stated that Messrs Rashid Textile Mills was a fake unit and was not manufacturing any goods, therefore, the supply of goods by the said unit is out of question and that the appellant knowingly that Messrs Rashid Textile Mills is not involved in the manufacturing of taxable goods had produced the invoices of said fake unit at the time of sanctioning of refund, therefore, is also involved in tax fraud. It is prayed that the appeal be dismissed by maintaining the orders of the lower fora. 7. I have considered the submissions made by the parties and perused the record. So far as the contentions of the appellant that only Board of Revenue or the Collector is competent to reopen the matter is concerned that is not tenable for the reason that the refund is sanctioned to a person on provisional basis subject to subsequent audit and scrutiny. It is not a matter of reopening of the past and closed transaction rather it is an exercise envisaged by Sales Tax Act for scrutiny and auditing the refund sanctioned to the registered persons. The second submission of the appellant that the allegation of getting refund against fake and flying invoices is baseless has no legs to stand for the reason that the supplier of the appellant was not involved in any manufacturing process, therefore, was not in a position to supply any taxable goods, therefore, the invoices issued by the said unit were rightly rejected by the department. It was also noticed from the record that the appellant failed to produce any such tangible evidence to show that the raw material was actually transported from Messrs Rashid Textile Mills to the appellant"s unit. According to section 7 of the Sales Tax Act, 1990 the valid invoice would be that invoice against which the actual supply of the material is witnessed. It is also a matter of common knowledge that refund only could be claimed against an amount which has been deposited by the supplier in the national exchequer and when no such amount was deposited by Messrs Rashid Textile Mills then the appellant was not entitled to get the refund. It has been proved on the file by overwhelming evidence that Messrs Rashid Textile Mills was adjudged to be a fake unit by the competent authority vide Order-in-Original No. 13 of 2001 dated 18-2-2001, therefore, all the transactions made with the said unit were sham transactions having no sanctity in the eyes of law. 8. The upshot of the discussion is that the orders passed by both the lower forums do not suffer from any legal infirmity and are based upon on sound appreciation of the record are, therefore, liable to be maintained. 9. For the foregoing reasons, the appeal having no force is dismissed. Parties be informed through registered post or by UMS. 10. File be consigned after completion. C.M.A./117/Tax(Trib.) Appeal dismissed.

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