2010 P T D (Trib.) 1631
[Income-tax Appellate Tribunal Pakistan]
Before Syed Nadeem Saqlain, Judicial Member
S.T.A. No. 1334/LB of 2009, decided on 25/02/2010.
(a) Sales Tax Act (VII of 1990)---
----Ss.36, 7, 8, 8A, 10, 11, 23, 26, 2(14), 2(37) & 73---Sales Tax Refund Rules, 2006, R.12---Recovery of tax not levied or short levied or erroneously refunded---Scrutiny of post refund audit of refund claims for the tax period of December, 2003 and April, 2004 showed that registered person/appellant received refund knowingly and fraudulently against fake/flying invoices issued by the supplier which was blacklisted---Registered person on the basis of such facts, was called upon to show cause as to why input tax received illegally be not recovered along with penalty and default surcharge---Registered person contended that executive order declaring the supplier as blacklisted/suspected unit may not be applied retrospectively---Department contended that the supplier was blacklisted on account of past activities; since audit was conducted with regard to past business/transactions of the unit, and the supplier was only blacklisted after conducting the audit, thus the action would have retrospective effect---Validity---Refund claim related to tax period of December, 2003 and April, 2004 while the supplier was blacklisted in 2007 and adjudication order was passed on 12-03-2008, much after the tax period, when refund was claimed and almost year after the supplier unit was blacklisted---Department, in circumstances, was not within the ambit of law while passing the order against the registered person for the reason that the supplier was blacklisted in 2007---Supplier was operative during the period i.e. December, 2003 and April, 2004 when the business/transaction took place---If it was allowed to happen then. the engine of business would come to grinding halt because no body would know with regard to fate of its business concern if the subsequent events like declaring a business blacklisted were allowed to cover the period when the other business concern with whom it was dealing with, was operative and the registered person who had been called upon to show cause, entered into business transaction with the subsequently blacklisted business in good faith and as per prevailing conditions at that time---Appeal was allowed and orders passed by the lower officers were vacated by the Appellate Tribunal.
1993 PTD 713 and 2005 SCMR 492 rel.
(b) Sales Tax Act (VII of 1990)---
----S.36(1)---Recovery of tax not levied or short levied or erroneously refunded---Show-cause notice---Registered person contended that no charge-sheet with regard to collusion or deliberate act was given as envisaged under S.36(1) of Sales Tax Act, 1990---Validity---Proper show cause as envisaged under S.36 of the Sales Tax Act, 1990 was not issued, so proceedings conducted in pursuance thereof could not be held legal proceedings.
2007 PTD 2265 and GST 2006 CL 63 rel.
Khubaib Ahmed for the Appellant.
Sardar A. Raza Qazailbash, D.R. for the Respondent.
Date of hearing: 25th February, 2010.
ORDER
SYED NADEEM SAQLAIN, JUDICIAL MEMBER.---The captioned appeal has been directed against the Order-in-Appeal No.298G of 2008 dated 24-10-2008, passed by the learned Collector Appeal Faisalabad. The facts leading to the filing of present appeal are that during the scrutiny of post refund audit claim of the appellant for the taxation period i.e. December, 2003 and April, 2004, it was observed that the appellant received refund of Rs.1,50,107 knowingly and fraudulently against fake/flying invoices issued by the Jay Textile Mills which was blacklisted and thus contravened sections 7, 8, 8A, 10, 11, 23 and 26 of the Sales Tax Act, 1990 read with 2(14), 2(37) and 73 ibid details of which are as under:---
| Reg. No. | Seller Name | Inv. No. | Inv. Date | Tax Period | Sales Tax |
| 0507540300591 | Jay Textile Mills (Pvt.) Ltd. | 2823 | 5-4-2004 | 04.2004 | 13,139 |
| 0507540300591 | Jay Textile Mills (Pvt.) Ltd. | 2830 | 6-4-2004 | 04.2004 | 47,366 |
| 0507540300591 | Jay Textile Mills (Pvt.) Ltd. | 2921 | 5-4-2004 | 04.2004 | 71,558 |
| 0507540300591 | Jay Textile Mills (Pvt.) Ltd. | 2251 | 15-12-2003 | 12.2003 | 18,044 |
2. On the basis of aforesaid facts, the appellant was called upon to show cause as to why input tax amounting to Rs.150107 received illegally may not be recovered in terms of sections 11(2) and 36(1) of the Sales Tax Act along with penalty and default surcharge under sections 33 and 34 of the Act. The adjudication proceedings culminated in passing an Order-in-Original No.101 of 2008 dated 12-03-2008: A number of grounds were taken up at the time of filing of appeal, however, the learned counsel appearing on behalf of the appellant pleaded at the Bar that he would press his arguments on the basis of two legal objections.
(i) No charge-sheet with regard to collusion or deliberate act as envisaged under section 36(1) of the Act was given to the appellant.
(ii) Executive order made by the Collector Sales Tax declaring the supplier as blacklisted suspected unit not to make applicable 1 retrospectively.
3. Both the parties have been heard and relevant orders perused. The learned A.R. has vehemently argued the case and contended that the adjudicating authority as well as the learned Collector (Appeals) erred in law while passing the impugned orders. With regard to the first ground urged at the Bar, the learned A.R. submitted that there was no allegation of collusion or deliberate act, hence the conditions laid down in section 36 have not been complied with. In this respect reliance was placed on judgments cited as 2007 PTD 2265 and GST 2006 CL 63. While continuing with the arguments the learned A.R. put his emphasis on his second limb of argument that executive order made by the Collector Sales Tax whereby supplier i.e. Jay Textile Mills was declared blacklisted unit could not be made applicable retrospectively. He stated that refund claimed related to the tax period of December, 2003 and April, 2004 while unit was blacklisted in 2007, while the adjudication order was passed on 12-03-2008. It was contended by the learned A.R. that there was no violation of any section of the Sales Tax Act at the time of sale/purchase of goods between the appellant and M/s. Jay Textile Mills.
4. To substantiate his argument with regard to said issue, the learned A.R. relied upon judgment of the Customs, Excise and Sales Tax Appellate Tribunal. In somewhat similar circumstances, the appeal of the appellant was accepted and the impugned order-in-original as well as the order-in-appeal were set aside. The learned A.R. also placed reliance on the judgment of the Lahore High Court Lahore reported as 1993 PTD 713 and the judgment of the apex court reported as 2005 SCMR 492.
5. The learned D.R. has opposed the arguments advanced by the learned A.R. It was submitted by the learned D.R. that show-cause notice was issued as per law laid down under section 36 of the Act, hence there was no flagration of law in this respect. On the issue of retrospective application of the notification whereby the supplier was declared blacklisted, it was argued that the said supplier was declared blacklisted on account of past activities since audit is always conducted with regard to past business/transactions of the unit. The supplier was p only declared blacklisted after conducting thorough audit, hence it would have a retrospective effect.
6. I have heard the learned counsel for both the parties and have also gone through relevant order and case-law cited at the Bar. After hearing the assertions made by learned counsel for the respective parties, I feel inclined to accept the appeal of the appellant. Taking up the first issue with regard to the issuance of notice under section 36 of the Act, I am constrained to observe that the conditions laid down in section 36 ibid have not been complied with at all. At this juncture, it would not be out of place to reproduce section 36(1) which is as follows:---
"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, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice."
7. Bare perusal of the aforesaid section clearly shows that there is no allegation of collusion or deliberate act as provided in section 36 of the Act. In this respect, judgment of the Lahore High Court reported as 2007 PTD 2265 is also on all fours to the case of the assessee.
"10. To put it succinctly, show-cause notice can only be served under section 36 ibid, if:---
(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 section (1) of section 36 of the Sales Tax Act or owing to inadvertence or error or misconstruction per subsection (2) thereof; and
(c) Within the period of five years under subsection (1) and three years under subsection (2) of section 36.
The unarguable conclusion thereto is that mere non-levy, short-1 levy or erroneous refund of tax or charge cannot be the basis for a show-cause notice. It has to be founded upon non-levy, short-levy or erroneous refund caused by any of the above reasons which being the dominant factor also determine the period of limitation thereto. In the absence of any of the three conditions or the jurisdictional facts, the taxing authorities shall have no power or jurisdiction to serve a show-cause notice under section 36 ibid."
8. We must observe that following the ratio laid down in the aforesaid judgment, we have no option but to come to the conclusion that proper show cause as envisaged under section 36 was not issued, so proceedings conducted in pursuance thereof could not be held legal proceedings.
9. Perusal of the impugned order in appeal passed by the learned Collector (Appeals) giving the impression that main emphasis of the learned first appellate authority was that the supplier of the appellant was declared blacklisted. However, even on this issue, I feel persuaded by the arguments advanced by the learned A.R. It is matter of record that the refund claim related to the tax period of December, 2003 and April, 2004 while the unit in question was declared blacklisted in 2007. It is also worth-mentioning that adjudication order was passed on 12-3-2008 much after the tax period when refund was claimed and almost year after the supplier unit was declared blacklisted. Scanning of the various judgments relied upon by the learned A.R. for the appellant in support of his contention also substantiate the view point urged by the learned A.R. The judgment of Lahore High Court reported as 1993 PTD 713 and Supreme Court of Pakistan reported as 2005 SCMR 492. It has been held by the apex court that
"it is well-settled principle of law that the executive orders or notifications, which confer rights and are beneficial, would be given retrospective effect and those which adversely affect or invade upon vested right cannot be applied with retrospective effect."
10. Following the ratio settled in the above mentioned judgments, we are of the view that the department was not within the ambit of law while passing the order against the appellant for the reason that the supplier (Jay Textile Mills) was blacklisted in 2007. Obviously, the supplier in question was operative during the period i.e. December, 2003 and April, 2004 when the business/transaction took place. We must further add that if it is allowed to happen then the engine of business would come to grinding halt because nobody would know with regard to fate of its business concern if the subsequent events like declaring a business blacklisted are allowed to cover the period when the other business concern with whom it was dealing with, was operative and the registered person who has been called upon to show cause entered into business transaction with the subsequently blacklisted business in good faith and as per prevailing conditions at that time.
11. For the foregoing discussion, we allow the appeal of the appellant, both the orders passed by the learned lower officers are directed to be vacated.
C.M.A./53/Tax (Trib.)Appeal accepted.