Sales Tax. Act (VII of 1990)-----

----S. 7---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Determination of tax liability---Non-speaking order-- Input tax credit was disallowed on the ground of fake invoices without considering the complainant/assessee's contention that material was purchased from the suppliers registered with the Sales Tax Department---Validity---Case had been dismissed summarily without taking into consideration the assessee's point of view and without examining the registers/documents presented by the complainant/ assessee in support of their contentions---Certain critical aspects of the case had not been examined and, analyzed by the Department before arriving at a decision---Well reasoned speaking order ought to have been passed in the case on its merits---Federal Tax Ombudsman recommended the Revenue Division to direct the Collector Sales Tax, to re-open the order under S.45A(4) of the Sales Tax Act, 1990, to examine the record of the departmental proceedings and to decide the case afresh on its merits keeping in view of the foregoing observations, the contentions of the complainant and valid admissible evidence.

Muhammad Hamayun for the Complainant.

Ch. Muhammad Javed, D.C. Adjudication, Faisalabad for Respondent.

FINDINGS/ORDERS

Messrs Ali Packages, Faisalabad, the complainant, has alleged maladministration. on the part of the Sales Tax Authorities, Faisalabad for denying the credit of input tax of Rs.348036 to their unit and for imposing on them a penalty of Rs.104500 for contravention of the provisions of the Sales Tax Act, 1990. It has been pleaded that the authorities be directed to allow them the input tax and remit the penalty. Brief facts made, by the complainant are:

(i)In the Order-in-Original No.55 of 2002, dated 1-2-2002 passed in their case by the Deputy Collector (Adjudication), it was held that they had claimed illegal adjustment of the above said amount ordering its recovery.

(ii)The Order passed by the D.C. did not incorporate the contents of their reply to the show-cause notice. While deciding the case the D.C. had wrongly observed that (i) the complainant had no defence in the case and (ii) were willing to deposit the adjusted amount. The D.C. dismissed their case without, reason.

(iii)The relevant invoices on the basis of which adjustment of input tax was made and the relevant register were presented for the perusal of the Adjudicating D.C., but he returned them with the remarks that the suppliers were fake and he was helpless to consider the case. The D.C. disallowed the input tax, which was paid by them to the supplier as per invoices duly issued.

2. In their reply the respondent has made the following points:--

(i)The respondent did not submit any written reply to the show-cause notice.

(ii)The complainant was given ample time to produce/provide evidence of the bona fide of his purchase invoices but failed to do so. In some cases of similar nature, the parties had voluntarily deposited the amount claimed as input tax adjustment against fake invoices alongwith additional tax and penalty.

(iii)The complainant never paid any amount of sales tax to the supplier as the transactions between the two were not genuine. Neither the supplier deposited sales tax in the treasury nor did the buyer receive any goods.

(iv)The Government had to suffer a double below. The legitimate Government Revenue was not deposited in the treasury yet input tax adjustment was claimed out of the payable tax.

(v.)It was not the responsibility of the Tax Department to advise the complainant that his supplier was fake.

3. At the time of hearing the complainant made the following points:--

(i)In their reply to the show-cause notice they informed the D.C. that invoices and purchases register were available but he did not examine them.

(ii)It was supplier's responsibility to pay tax. Complainant's supplier was registered with department and supplied goods during the relevant period against invoices.

(iii)The complainant used to submit sales tax returns regularly to Sales Tax Authority Faisalabad on the basis of which they took the adjustments. The unit did not maintain any inward register but they maintained purchases register, which could have been seen.

(iv)Mode of payment was cash as all invoices were below 50,000. Asked how will he prove consumption of the material received? The complainant stated that they did not maintain record showing consumption but they did maintain the sales register, which too could be examined by the department. They were known producers of cartons and stiffeners from paper and cardboard received from the suppliers. He also invited attention to FTO's Order passed in Complaint No.383 of 2002, dated 31-7-2002 involving similar matter.

4. During the hearing certain questions were posed to the representative of the respondent to which he gave the answers set out below:--

(i)Were the suppliers registered? Yes the suppliers were registered but they turned out to be fake. Was any action taken against the staff who registered them? He had no intimation about it, the suppliers were normally present at the time of registration but disappeared subsequently.

(ii)Were criminal proceedings instituted against fake suppliers? The respondent stated that he had no information whether or not the Karachi Collectorate lodged any criminal complaint against them. He further stated that the assessee had himself, under self-assessment system, made the adjustment. Audit of units was conducted only, after a year. The audit of complainant's unit was carried out which led to adjudication. No physical transfer of goods was involved.

5. The arguments of the parties and the record of the case have been examined. It is found that in the Order-in-Original No.55 of 2002. dated 1-2-2002, the D.C. ordered recovery of the amount of Rs.348036 from the complainant and imposed penalty for claiming illegal adjustment of sales tax against fake invoices issued by fake registered units. Even though the Advocate of the complainant was heard, the order passed, as contended by the complainant, does not incorporate the point of view of the complainant. The complainant disputes and challenges the observation of the Adjudicating Officer that they had .nothing to defend and were willing to deposit the amount detected under audit. It is not understood why copies of the invoices and purchases register/other documents presented to the Adjudication Officer were not examined. The complainant contends that they were known producers of cartons and stiffeners from paper and cardboard, received from the suppliers and, therefore, consumed this material in the manufacture of their production. This crucial aspect of the case has not been examined/analyzed by the respondent because there is no finding in the adjudication order showing whether or not the complainant had used the packing material in question for purposes of supplies of their production. The legality of invoices against cash payment below Rs.50,000, for each transaction could not be questioned until the respondent took the investigation proceedings to the logical end. The argument that in number of other cases the registered persons who had claimed input adjustment against fake invoices issued by the same unit had voluntarily deposited the whole amount claimed as input tax cannot be held against the complainant because, unlike others, the complainant challenges respondent's action on the ground that he had purchased the material from suppliers registered by the Sales Tax Department.

6. The complainant's case has been dismissed summarily without taking into consideration their point of view and without examining the registers documents presented by the complainant in support of their contentions. Certain critical .aspects of the, case, some of which have been identified above, have not been examined and analyzed by the respondent before arriving at a decision.: A well-reasoned out speaking order ought to have been passed in the case on its merit.

7. Accordingly, it is recommended that the Revenue Division:---

Direct the Collector Sales Tax; Faisalabad to re-open the Order- in-Original 55 of 2002, dated 1-2-2002 under section 45A(4) of the Sales Tax Act 1990, examine the record of the departmental proceedings and decide the case afresh on its merit keeping in view (i) the forgoing observations, (ii) the contentions of the complainant and (iii) the valid admissible evidence.

The complainant should be given the opportunity of being heard before deciding the case.

Compliance report to be submitted within 30 days of the receipt of this order.

C.M.A./640/FTOOrder accordingly.