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Petitioner: Messrs MADNI PACKAGES (PVT.) LTD. VS Respondent: COMMISSIONER (I.R.), ZONE-IV, RTO- II, KARACHI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Sikandar Aslam, Abdul Qayyoom Sheikh Title:Messrs MADNI PACKAGES (PVT.) LTD. vs COMMISSIONER (I.R.), ZONE-IV, RTO-
II, KARACHI Case No.: S.T.A. No.175/KB of 2013 Date of Judgment:2014-11-27 Reported As: 2015 PTD (Trib.) 1490 Result: Appeal allowed Judgment ORDER SIKANDAR ASLAM (ACCOUNTANT MEMBER).---The above titled sales tax appeal has been filed at the instance of the appellant/registered person calling in question the Order-in-Appeal No.89 of 2013 dated 29-3-2012 passed by the learned Commissioner Inland Revenue (Appeals-II), Karachi, wherein Order-in-Original dated 28-6-2012 passed by the Deputy Commissioner Inland Revenue, Zone-IV, RTO, Karachi was allowed to be maintained. 2. Brief facts leading to filing of this appeal are that the appellant is a Private Limited Company engaged in the business of packaging business. The Adjudicating Officer/DCIR issued Show-Cause Notice to the appellant, wherein it was alleged that the appellant for the tax period from July, 2009 to February, 2011 had illegally claimed/adjusted inadmissible input tax against the blocked/blacklisted suppliers in violation of the provisions of sections 2(37), 2(9), 2(14) (a), 3( 1) (a) & (b), 6(1) & (2), 7(1), (2)(i)(ii), 8(1)(a), (ca) & (d), 8A, 21, 22(1), 23(1), 25, 26(1) and 73 of the Sales Tax Act, 1990 and directed to pay Rs.11,62,216 as principle amount of sales tax along with default surcharge and penalty under sections 34 and 33(11) of the Act ibid. The adjudicating proceedings culminated in passing Order-in-Original dated 29-6-2012 by ordering recovery of Rs.11,62,216 along with default surcharge and penalty. 3. The appellant feeling aggrieved filed appeal before the Commissioner Inland Revenue (Appeals), Karachi, who vide his impugned Order-in-Appeal No.89/2013 dated 29-3-2013 maintained the action of the DCIR. The appellant, feeling still aggrieved, has come up in appeal before us.
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4. Number of grounds were taken at the time of filling of appeal, however, the only issue pertains to recovery of sales tax of Rs.11,62,216 along with default surcharge and penalty due to the allegation of illegally claimed/adjusted inadmissible input tax against the blocked/blacklisted suppliers. 5. The learned counsel for the appellant submitted facts of they case, grounds of appeal and raised some legal as well as factual 'objections. The facts and grounds of appeal are reproduced as under:-- Facts Main ground is in the appeal from appellant is disallowance of Input tax amounting to Rs.11,62,216 on purchases made from two parties as under: Input tax Input tax Messrs Ali Enterprises S. Tax Reg. No.17.02.9999-014-46 Rs.5,81,128 Messrs A.A. Enterprises S. Tax Reg. No.17.02.9999-390-73Rs.5,81,088 (1) Purchases from Messrs Ali Enterprises were made in February 2011 and. Messrs A.A. Corporation between July, 2009 to March 2010. (2) Main reason for disallowance of Input tax was both parties were blocked/suspended on 21-2- 2012 and 24-12-2010 respectively. (3) DCIR has adjudicated the order invoking sections 7(1), 2(1)(ii), 8(1a), (ca) & (d) 8A, 22(1), 23(1), 25, 26(1) and 73. (4) CIR-Appeal-III, Karachi vide order dated 29-3-2013 conformed the disallowance and maintained the order with the observation that the parties had been suspended and subsequently as well they did not turned up for unblocking or restoration of suspension. GROUNDS OF APPEAL (1) That the CIR (Appeals-II), Karachi was not justified to reject the appeal filed by the appellant which is against the facts of the case and are contrary to law. They ignore the relevant and material considerations and are based on extraneous considerations. (2) That the appellant order passed by the learned CIR (Appeals-II), Karachi and Assessment Order passed by the DCIR are also against good conscience natural justice and fair play and are also against the laws of equity. (3) That the appellant order passed by the learned CIR (Appeals-II), Karachi and Assessment Order passed by the DCIR have erred by ignoring the fact that the appellant was rightly claimed/ adjusted the input tax. (4) That the learned DCIR has charged Sales Tax amounting to Rs.11,62,216 on the issue of black- listed, blocked and suspended suppliers as per FBR web portal with penalty and default surcharge under sections 34 and 33(11) of the Sales Tax Act, 1990. (5) That the appellant in compliance of the instructions as laid down under the Sales Tax Act, 1990 read with rules, prior to making any purchases, always checks the status of the supplier on-line in order to know whether they are active taxpayers or not. The appellant also takes care of the other conditions attached to claiming input tax on the said supplies as required under the Sales Tax Act, 1990 including the strict compliance of section 73 of the Sales Tax Act, 1990, which requires payment of purchases/sales tax through Banking Channels. The appellant has complied with all these instructions in this case and is not liable to make any shortfall in the sales tax due to the default on the part of supplier who were active taxpayers at the relevant time. (6) That the main allegation against the appellant in the ^1i ugned order is that it has purchases the goods from dummy/blacklisted and suspend sales tax registered persons and was, therefore,
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not entitled to adjust/claim the input tax paid on the said purchases made from them. This is absolutely incorrect and is denied in totality. The appellant has made purchases from persons as stated in the show-cause notice who were available on the Active Taxpayers List of FBR, duly available on the website at the relevant time when the purchases were made. It is also a matter of record, that even subsequently such registered persons were available on the website as Active Taxpayers. Therefore this allegation, on the very basis of which the whole case is made out, is not sustainable. Further the appellant was legally bound to comply with the all requirement of the Sales Tax Act, 1990 which has been duly complied with. (7) That no notice has been issued to any of the alleged dummy/blacklisted/suspended sales tax registered persons who were allegedly involved in the alleged fake sales tax invoices, while the appellant is being issued notices which is illegal and not sustainable, in the eyes of law. (8) That the appellant has always complied with the provisions of Sales Tax Act, 1990 including section 73 of the Act ibid, hence no case could be made out against the appellant as the appellant cannot be held liable for the act of others. (9) That the sole ground on which he impugned order has been passed is, that, the appellant has made purchases from blacklisted/suspended/dummy suppliers and hence all the input tax credit is to be disallowed, whereas it as an admitted fact that all the suppliers mentioned in the show- cause notice, at the relevant time when all these purchases were made, were Active Taxpayers, and were filing this returns online one the basis of which the appellant's returns were also accepted and hence the very basis of the show-cause notice and the order-in-original are false and fabricated and is based on frivolous information. There the impugned order is completely without jurisdiction. 6. At the very outset, the learned counsel for the appellant submitted that the treatment meted out by both the authorities below is erroneous and without application of judicial mind and liable to be annulled. He contended that the show-cause notice issued by the DCIR was vague and ambiguous in material particulars. The learned A.R. Referred to a number of decisions of this Tribunal in this regard and has vehemently contended that the said show-cause notice is not sustainable in the eyes of law. He further contended that various sections of Sales Tax Act were invoked while adjudicating the issue which are not relevant to the case and even the assessing officer himself has not discussed or touched any of these sections like section. 2(9), which deals with due date for filing of returns, section 2(14A) KIBOR rate, section 3(1)(a), taxable supplies made, section 3(1)(b), tax paid on goods imported into Pakistan, section 6(1), time and manner of payment, section 6(2), Tax paid by the Registered Person at the time of filing return, section 7(1), determination of tax liability, section 7(2)(i), holding of tax invoice, section 7(2)(ii), holding of bill of entries for purchase made through imports, section 22(1), Records keeping, section 23(1), Tax Invoices, section 25, Access to record, documents etc., section 26(1), filing of tax returns, section 2(37) Tax fraud, section 8(1)(ca), Goods on which Sales Tax has not been deposited in the Government treasury, section 8(1)(d), fake invoices, section 8(A), joint and several liability of registered person in supply chain where tax unpaid, section 21 De-registration, blacklisting and suspension of registration, section 73, Certain transactions not admissible. However, only. Section 2(37), i.e. Tax fraud, section 8A, Joint and several liability of registered persons in supply chain where tax unpaid, section 8(1)(ca), tax deposit into the Government treasury, section 8(1)(d), fake invoices and compliance of section 73 are relevant in this case but the DCIR, had neither touched upon or discussed any of the above sections while passing the Order-in-Original. It was further argued that the adjudicating officer failed to prove any collusion or tax fraud on the part of appellant and to prove the same onus was lying on the department and merely on the plea that suppliers had become blocked/suspended subsequent to the purchases made by the appellant cannot prove that the transactions were in the nature of tax fraud.
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7. We have given serious consideration to the contention raised by the learned A.R. It has been noted that DCIR has tried to invoke series of provisions of Sales Tax Act, as mentioned in the show- cause notice such as 2(7), 2(9), 2(14) (a), 3(1) (a) & (b), 6(1) & (2), 7(1), (2)(i)(ii), 8(1)(a), (ca) & (d), 8A, 21, 22(1),23(1), 25, 26(1) and 73 of the Sales Tax. Act, 1990 but without specifying the allegations. Perusal of series of sections, as mentioned above, shows that mostly these are just definitions and deals with the scope, time and manner of payment of sales tax and different procedure. The adjudicating officer was required to frame specific allegations based on the above provisions in the show-cause notice which has not been done. It is further noted that the impugned order has been passed without mentioning any section of assessment of tax. The Adjudicating Officer was required to pass the order under specific subsection of section 11 of Sales Tax Act, 1990 which in this case has not been done. It would be pertinent to refer to the relevant subsections of section 11 which reads as under: "11. Assessment of Tax and recovery of tax not levied or short-levied or erroneously refunded.--- (1) Where a person who is required to, file a tax return fails to file the return for a tax period by the due date or pays an amount which, for some miscalculation is less than the amount of tax actually payable, an Officer of Inland Revenue shall, after a notice to show-cause to such person, make an order for assessment of tax, including imposition of penalty and default surcharge in accordance with sections 33 and 34: Provided that where a person required to file a tax return files the return after the due date and pays the amount of tax payable in accordance with the tax return along with default surcharge and penalty, the notice to show cause and the order of assessment shall abate. (2) Where a 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 this Act for reasons other than those specified in subsection (1), an Officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with sections 33 and 34. (3) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice requiring him to show cause for payment of the amount specified in the notice. (4) Where, by reason of any inadvertence, error or misconstruction, any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay the amount of tax or charge or the amount of refund erroneously made shall be served with a notice requiring him to show cause for payment of the amount specified in the notice: Provided that, where a tax or charge has not been levied under this subsection, the amount of tax shall be recovered as tax fraction of the value of supply. (5) No order under this section shall be made by an Officer of Inland Revenue unless a notice to show cause is given within five years, of the relevant date, to the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard:" 8. For the purposes of assessm ent, the officer was under obligation to specify the relevant subsections out of subsections (1), (2), (3) or (4) which deals with the assessment under different situations. Each of these subsections deals with a particular situation. It may be mentioned here that subsections (3) and (4) of section 11 were earlier part of section 36, which was omitted by the Finance Act, 2012 and subsections (1) and (2) of said section 36 were incorporated in section 11 as its subsections (3) and (4). The officer was under obligation to mention the relevant subsection out
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of subsections (1), (2), (3) or (4) of section 11 in his show-cause notice and the impugned order, which has not been done. Instead order has been passed without mentioning any relevant subsection of assessm ent under section 11 of Sales Tax Act, 1990. This Tribunal in its decision reported as 2004 PTCL 18 has laid down following distinctions between sections 11(2) and 36(1): "The difference between two provisions of law is that section 11(2) and (4) deals with non- payment/short payment of tax by the person from whom it was due on the supplies made by him and also where the claimed input tax credit or refund which was not admissible under the Sales Tax Act, 1990. As far the input tax credit/refund, subsection (2) of section 11 only covers such input tax credit/refund which had been claimed but was not admissible. On the other hand section 36 of Sales Tax Act, 1990 covers non- levy, short levy of sales tax and such amounts which have already been refunded erroneously. Subsection (1) of section 36 deals with the situation where non levy/short levy erroneous refund was made due to some collusion or deliberate act and subsection (2) of section 36 deals with the same situation but where the cause was inadvertence, error or misconstruction. With regard to erroneous refund section 36 is to get invoked where the amount has already been refunded erroneously as against that section 11(2), in addition to non- payment, short payment of tax due on supplies made by a person deals with "input tax credit or refund" which has been "claimed", "which is not admissible under this Act': Similarly, the Hon'ble Lahore High Court in its judgment reported as 2007 PTD 2265 has been pleased to hold as under:-- "10. To put it succinctly show-cause notice can only be served under section 36 ibid, (a) Any tax or charge has not been levied or has been short-levied or has been erroneously refunded; (b) Such non-levy, short-levy or erroneous refund has been caused by the reason(s) of "some collusion or a deliberate act" under subsection (1) of section 36 of the Sales Tax Act or owing to inadvertence or error or misconstruction per subsection (2)" Likewise the honourable Supreme Court of Pakistan in its judgment reported as 2005 PTD 480 has held as under:-- "under section 36 of the Sales Tax Act, 1990, the cases of non-levy of tax or short levied or erroneous refund are divided into two categories. The first category of cases in which due to deliberate act, tax is not levied or short levied or erroneously refunded, are covered by subsection (1) of section 36 ibid whereas subsection (2) of this section covers the cases in which sales tax was not levied or short levied or erroneously refunded by reason of inadvertence, error or misconstruction." 9. From the above judgments, it is amply clear that subsection (1) of omitted section 36, is now subsection (3) of section 11, which deals with the situation, where non levy/short levy or erroneous refund was made due to some collusion or deliberate act of the person who has authority or power to levy sales tax whereas subsection (2) of omitted section 36 covers the cases in which sales tax was not levied or short levied or erroneously refunded by reason of inadvertence, error or misconstruction. Obviously tax payer/appellant does not possess such power or authority. Therefore, omitted sections 36(1) and 36(2) which are now subsection 11(3) and (4) respectively are applicable in a situation where the assessing/adjudicating officer has failed to levy, has short levied or refunded the tax by way of collusion or inadvertence. Likewise section 11(2) deals with non-payment/short payment of tax by the person from whom it was due on the supplies made by him and also where the claimed input tax credit or refund was allowed which was not admissible under the Sales Tax Act, 1990. As far the input tax credit/refund, subsection (2) of section 11 only covers such input tax credit/refund which had been claimed but was not admissible. However, adjudication officer in his show-cause notice has not mentioned any of the relevant subsections of section 11. By no stretch of imagination, it could possibly be construed that one would order cross
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the four situations envisaged in section 11 at the same time. Therefore, we fully agree with the contention of the learned A.R. That the show-cause notice was vague and ambiguous in material particulars. It needlessly mentioned a series of irrelevant sections of the Act without specifying the allegation or default and when it comes to the sections related to assessment there too confusion continued as no reliance on section 11 of the said Act has been placed. Accordingly, proceedings and the subsequent orders based on such a notice are not sustainable in the eyes of law. It is settled principle of law that without completion of prerequisite of show-cause notice and supply of the grounds/reasons in clear and explicit words to ascertain that under which subsection or section, the case would fall, the demand notice may have no legal consequences and thus the failure of the authorities issuing show-cause notice to disclose such grounds and reasons renders the notice invalid. In the instant case, it is not clear as to under which subsection or section of Sales Tax Act, the show-cause notice was issued. The show-cause notice carrying the defect of vagueness cannot stand to the test of judicial scrutiny. This Tribunal in its decision reported as 2011 PTD 808 has held that a vague show-cause notice fails to meet foundational legal requirements; therefore, demand created as a result thereof is not sustainable. Accordingly, the order of the adjudicating officer issued in consequence thereof and its subsequent confirmation by the CIR(A) in his impugned order is held to be of no legal consequences. 10. From the above discussion, it is crystal clear that the adjudication officer has assumed jurisdiction without lawful authority by initiating proceedings through vague and ambiguous show- cause notice. It is settled proposition of law that if law prescribes thing to be done in a particular manner, such provision of law is to be followed in letter and spirit. Reliance is placed on the judgments cited as 2001 SCMR 838, 2003 SCMR 1505, 2011 PTD 2480 at 2516, 2006 PTD 2567 (Lahore H.C.), PLD 1997 Lah. 692. Similar question also came up for consideration before the Hon'ble Supreme Court of Pakistan in case of Izhar Alam Farooqi v. Sheikh Abdul Sattar reported as 2008 SCMR 240 wherein the Hon'ble Court held as under:-- "if a mandatory condition for the exercise of a jurisdiction before Court, Tribunal or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revision equally suffers from illegality and is without jurisdiction." 11. Respectfully following the above judgments of Superior Courts and in view of the vague and ambiguous notice containing irrelevant D provisions of law with no specific allegations attached thereto as well as finalizing the Order-in-Original and confirmation thereof by the learned CIR (Appeals) under no provision of law in the appellant's case are held to be without lawful authority. 12. Regarding facts of the case and applicability of the relevant sections, the learned counsel for the appellant further submitted that the treatment meted out by both the authorities below acted in excess of their jurisdiction as they had gone beyond the scope of the show-cause notice while making their decisions. He stated that the provision of section 2(37) of the Sales Tax Act, 1990 had wrongly been invoked in the instant case as the show-cause notice did not disclose any such act attributed to the appellant which could fall within the ambit of section 2(37) of the Act. To invoke this section, it is absolutely necessary to allege that the registered person has committed any act of tax fraud with concrete documentary evidence knowingly, dishonestly or fraudulently and without any lawful excuse. So the initial burden of proof lies on the department and not on the accused person. Prerequisites for a show-cause notice as per law have not been fulfilled< in the instant case which requires a person being alleged should be provided a complete and comprehensive charge-sheet which he could reply and defend. It is repeatedly held by the Superior Courts that prior to final determination of the liability by the competent forum/authority even commission of offence becomes a matter of further enquiry. Therefore, both the orders of the
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authorities below are contrary to the allegations contained in the show-cause notice and liable to be annulled on this score alone as any collusion or tax fraud on the part of the appellant has not been proved. Reliance was placed on the findings of this Tribunal in the case of Messrs Rain Drop Lahore v. Commission Inland Revenue (Appeals III)-Lahore reported as 2012 PTD (Trib) 885, wherein it, has been observed:-- Quote S.2(37)---Tax fraud---Fake invoices---Adjustment of input tax against invoices issued by the fraudster gang---Mandatory ' condition precedent for tax fraud is that registered person has acted knowingly, dishonestly or fraudulently and without any lawful excuse committed tax fraud--- Not and iota of evidence was available on record where from it could be deduced that the registered person had intentionally, knowingly or dishonestly or fraudulently committed tax fraud by claiming in put tax adjustment against the sales tax invoices issued by the fraudster gang--- Even the audit/contravention report coupled with the show-cause notice did not spell out or it could be proved by the department that the registered person had claimed illegal input tax adjustment with prior knowledge regarding fakeness of the sales tax invoices---Registered person was not intentional defaulter and was equally cheated by the fraudulent persons and fraudsters charged tax from the registered person---Revenue had wrongly invoked the provision of S.2(37) of the Sales Tax Act, 1990 in the show-cause notice which was liable to be struck down. Unquote With regard to Section 8(A) Honourable High Court in W.P. No. 3515/2012 decided on 22-11-2012 in the case of Messrs D.G.Khan Cement Company Limited v. Federation of Pakistan and others reported as 108 Tax 226 has held at Para 33. Quote It is also important to refer to section 8A of the Act which deals with a complete new specie of violation of law i.e., non-deposit of tax in the government treasury by the supplier. This does not cast any allegation of collusion on the part of the buyer or supplier but simply requires that the buyer should have had "knowledge" that the supplier…
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