COMMISSIONER INLAND REVENUE, FAISALABAD VS AL-ZAMIN TEXTILE MILLS PRIVATE LIMITED, FAISALABAD, 2018 PTD-LAHORE-HIGH-COURT-LAHORE 986 (2018)

Sales Tax Act (VII of 1990)---

----Ss. 8(1)(ca) & 21(3)---Refund or adjustment of input tax (tax credit)---Zero rated supplies made to blacklisted units---Burden of proof---Respondent taxpayer claimed refund of a certain amount---Taxpayer was served with a show cause notice alleging therein that taxpayer claimed refund against invoices of units that were suspended/blacklisted units---Appellate Tribunal set-aside the order-in-original by holding that at the time of transactions, the subject units were admittedly not blacklisted and there was no final order even to date against the allegedly blacklisted units; held, that the Appellate Tribunal had given a finding of fact that suppliers in question were operative during the period when the business/transaction took place---Even otherwise, initial burden laid on the department to show either that invoices had been issued during suspended or blacklisted period or in case invoices were not issued during period of blacklisting, then the cause or reason for blacklisting had some nexus with the invoices---Taxation Officer in the present case did not establish that said invoices were either fake or flying or the claimed tax was not deposited in the Government Exchequer---Judgment of Appellate Tribunal was upheld---Reference application was disposed of accordingly.

Ms. Saba Saeed Sheikh for Applicant.

Khubaib Ahmed for Respondent.

ORDER

Through instant Reference Application under Section 47 of the Sales Tax Act, 1990 ("the Act of 1990"), following questions of law, asserted to have arisen out of impugned order dated 09.12.2014, passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal"), have been argued and pressed for our opinion:-

i."Whether on the facts and in the circumstances of the case, the decision of learned appellate tribunal to allow the zero rated supplies made to blacklisted units is consistent with the provision of sections 3, 6, 8A, 22, 23 and 26 of the Sales Tax Act, 1990?

iiWhether on the facts and in the circumstances of the case, the learned Appellate Tribunal was justified to hold that order of blacklisting cannot operate retrospectively?

2.Brief facts are that respondent taxpayer received/claimed refund amounting to Rs.1,555,773/-. The taxpayer was served with a Show-Cause Notice ("SCN") alleging therein that invoices were issued by suspended/blacklisted units, which culminated in passing of order-in-original dated 30.05.2014. Feeling aggrieved, respondent taxpayer filed appeal before Commissioner (Appeals), which was partly accepted vide order dated 01.07.2014. Being dis-satisfied, respondent taxpayer preferred second appeal before learned Appellate Tribunal, which was allowed vide order dated 09.12.2014. Hence, this Reference Application.

3.Learned counsel for applicant department submits that Appellate Tribunal was not justified to hold that order of blacklisting cannot operate retrospectively. She adds that impugned order has been passed without addressing the legal issue and is also against the facts of the case. The respondent/taxpayer claimed refund against the invoices of the unit, which was declared blacklisted. Hence, orders of fora below were justified but the learned Appellate Tribunal was not justified to pass the impugned order. He is confronted with the fact that the issue in hand has already been settled by this Court vide judgment dated 01.11.2017 passed in 2018 PTD 108 titled Commissioner Inland Revenue v. M/s. Ali Hassan Metal Works and findings recorded therein are squarely applicable.

4.On the other hand, learned counsel for respondent taxpayer defends the impugned order and submits that learned counsel for applicant department has failed to point out any illegality or legal infirmity in the impugned order, thus, the same is liable to be upheld under the law.

5.Arguments heard. Available record perused.

6.The operative part of impugned order is reproduced as under:-

"8.We also deem appropriate to mention here that in the recent past, a division bench of the Hon'ble High Court, Lahore has dilated upon the same controversy in case of "Commissioner Inland Revenue v. Rana Riasat Tufail and others" reported as (2014 PTD 1530) by holding that furthermore, the blacklisting order is subsequent to the period for which refund is being claimed. At the time of transactions, the three entities were admittedly not blacklisted and there is no final order even today against the three blacklisted units. Therefore, no case for interference is made out. In the light of aforesaid, this ICA is dismissed.

9. In another case of "M/s. Nimra Textile Mills (Pvt) Ltd v. Federation of Pakistan, etc.", the Hon'ble High Court, Lahore in W.P.No.17237/2013 dated 09.07.2013 has held that the status of the buyer existing at the time of supply of goods by the petitioner shall be considered while deciding the show-cause notice and not the status attained by the buyer subsequently."

7.Perusal of impugned order shows that learned Appellate Tribunal has given finding of facts that suppliers in question were operative during the period when the business/transaction took place. Even otherwise, initial burden lies on the applicant-department that invoices have been issued during suspended or blacklisted period and in case invoices were not issued during period of blacklisting, the cause or reason for blacklisting has some nexus with the invoices. Taxation Officer did not establish that said invoices were either fake or flying or the claimed tax was not deposited in the Government Exchequer. Admittedly, the issue involved in this case has already been dealt with and answered by this Court vide judgment dated 01.11.2017, wherein the questions similar to the proposed questions were re-settled in one question, which was decided against applicant department. The relevant part of the said judgment is reproduced hereunder:-

"9. Intention of the Legislature; as is discernable from the provisions of section 21(3) read with section 8(1)(ca), is that reclaim (refund) or adjustment of input tax (tax credit) should not be allowed for an invoice against which sales tax has not been deposited in Government treasury. This clog appears to be logical because a tax not deposited in the Exchequer, cannot and should not be allowed to be withdrawn or adjusted. Claim of such refund or its adjustment amounts to rob the Exchequer and cheat upon the State. Conversely; to deny adjustment or refund of a tax deposited in the Treasury, if a registered person is entitled under that law, is against the legislative will.

10.The authorities, exercising quasi-judicial powers under a statute are bound to conduct a fair adjudication. To be dealt in accordance with law, due process and fair trial are inalienable fundamental rights guaranteed under Articles 4 and 10-A of the Constitution of the Islamic Republic of Pakistan, 1973 ("Constitution"). August Supreme Court of Pakistan in the Province of East Pakistan v. MD. Mehdi Ali Khan (PLD 1959 SC 387) held:-

"The determination of every right or liability claimed or asserted in a legal proceedings depends upon the ascertainment of facts and the application of the law to the facts so found. It is a normal feature of the judicial process first to discover the facts and then to determine what rights and liabilities follow from the application of the law to the facts found."

11. While invoking/applying the provisions of Section 21(3), Commissioner or Taxation Officer has to ascertain the fact that the invoices were issued during suspended or blacklisted period. In case invoices issued prior to blacklisting, the cause or reason for blacklisting has some nexus with the invoices. Bottom line is that tax was not paid or deposited against the invoices. To prove these facts burden is upon the revenue, however, this burden can be shifted upon the registered person claiming adjustment or refund of tax, in cases of tax fraud, in accordance with the provisions of section 2(37) of the Act of 1990. Not by confronting, merely, that the supplier was blacklisted subsequently, initial burden, before shifting, is to be discharged by the revenue, as is held in Al-Hilal Motors Stores and another v. Collector, Sales Tax and Central Excise (East) and another (2004 PTD 868), relevant excerpt of which is reproduced for facility:-

"A perusal of the show-cause notice as well as material produced before us further shows that no case of any tax-fraud has been made out whereby the burden of proof can be shifted to the appellants. The learned two forums below have misdirected in placing the burden of proof on the appellants in terms of the provisions contained in section 2(37) defining the expression "tax-fraud" without realizing that in order to attract the above provision, the initial burden lies on the Department to show that an assessee, knowingly, dishonestly or fraudulently and without any lawful excuse has done any act or has caused to be done or has omitted to take any action or has caused the omission to take any action in contravention of duties or obligations imposed under, this Act or rules or instructions issued thereunder with the intention of understanding the tax liability or underpaying the tax liability. Once this burden is discharged by the Department, only then, the burden is shifted to the assessee to establish that the act done was without any knowledge on his pat or without any intention of dishonesty or fraud and was done with any lawful excuse."

12. The questions proposed are not couched in proper words to clinch the proposition of law arising from the impugned order, therefore, we intend to resettle the question in following words:-

"Whether Taxation Officer was justified to invoke the provisions of Section 21(3) of the Sales Tax Act, 1990 or Rule 12(5) of the Sales Tax Rules, 2006 for not entertaining invoices, issued prior to blacklisting of supplier, for tax credit or refund, without establishing, through self-speaking order, that the invoices were fake or flying because the claimed tax was not deposited in National Exchequer?"

13. Our answer to the resettled question is in Negative.

Reference Application is decided against the applicant department."

8.Following the ratio settled in above reproduced case, instant Reference Application is disposed of in the same terms.

9.Office shall send a copy of this order under seal of the Court to learned Appellate Tribunal as per Section 47 (5) of the Sales Tax Act, 1990.

MWA/C-3/L Order accordingly.