VS, 2011 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 162 (2010)

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

----Ss.2(37), 2(14), 6, 7, 8, 8A, 22, 33(1), 34(c) & 73---Tax fraud--Input tax---Show-cause notice on the ground that refund was received on invoices issued by the black-listed units---Appellant contended that supplier was black-listed on 30-8-2007 while the refund related to the year 2004---Validity---At the time of making supplies to the appellant, the supplier in question was alive and doing business---Any default or flaw on the part of appellant could not be taken into consideration to burden the appellant with the incidence of taxation and use as pretext to refuse the claim of refund---Even otherwise at the time of issuance of show-cause notice, the name of the supplier stood removed from the list of blacklisted persons---Letter of the department whereby name of the supplier was deleted from the black-listed persons, there was no allegation with regard to tax due and only reason which weighed with the department for declaring it black-listed was that its name was not found on the given address---Such anomaly was resolved subsequently and upon verification of the premises, the registered person/supplier was very much found on the given business address---Adjudication order as well as order-in-original passed by the authorities below were set aside by the appellate tribunal and the show-cause notice issued was cancelled and the appeal was accepted.

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

----S.21(2)---De-registration,black-listing and suspension of registration---Procedure explained by Appellate Tribunal.

Akram Nizami for Appellant.

None for the Respondent.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---Titled sales tax appeal has been filed at the instance of the registered person against the Order-in-Appeal dated 30-8-2008, passed by the Collector (Appeals), Collectorate of Customs Sales Tax and Federal Excise (Appeals) Faisalabad. It is the grievance of the appellant that claim of refund against the input invoices was wrongly rejected by the department.

2. Facts relevant for disposal of present appeal are that during the processing and scrutiny of record by the Post Refund Audit, it was observed that Messrs MSC Textile (Pvt.) Ltd., Faisalabad received refund on invoices issued by the blacklisted unit Messrs Iqra Traders. On the basis of said observation a show-cause notice was issued alleging therein the appellant was involved in tax fraud as defined under section 2(37) of the Sales Tax Act, 1990 and evasion of Sales Tax and caused loss to the National Exchequer by means of refund received, against fake/flying invoices without physical transfer of goods as envisages under section 2(14) of the Sales Tax Act, 1990. Resultantly, the appellant was charged with the sections 4, 7, 8, 8A, 22 and 73 of the Sales Tax Act, 1990 read with relevant refund Rules, along with penalty and default surcharge under sections 33(11) and 34(c) of the Sales Tax Act, 1990 which led to the passing of an order-in-original dated 17-4-2008.

3. Feeling dissatisfied with the aforesaid order, an appeal was preferred before the Collector of Appeal who vide an order dated 30-8-2008 rejected the appeal of the appellant, hence the instant present appeal.

4. Both the parties have been heard and relevant orders perused. The learned A.R. has vehemently argued the case and contended that as per allegation made by the department, the supplier namely Iqra Traders blacklisted on 30-8-2007 while the refund related to the year, 2004. The learned A.R. further submitted that the order whereby the supplier was blacklisted was subsequently cancelled. In support of his contention, the learned A.R. placed on file an order dated 11-3-2005 passed by the Additional Collector which clearly mentions that Messrs Iqra Traders was blacklisted because it was not available on the declared business address, however, upon subsequent physical verification, of the premises, the registered person was found on the given address, thus the name of Messrs Iqra Traders was removed from the list of blacklisted persons. The learned A.R. pleaded at the bar that even at the time of issuance of notice i.e. 19-11-2007, the name of the supplier namely Messrs Iqra Traders stood deleted from the list of blacklisted persons. While summing up the learned A.R. stated that there was no violation of any provision of Sales Tax Act, therefore, show-cause notice issued by the department as well as subsequent orders passed by respective authorities, were nullity in the eye of law, hence unsustainable.

5. The learned D.R. has opposed the arguments advanced by the learned A.K. and pleaded for the maintaining of the adjudicating order as well as Order-in-original passed by the authorities below.

6. We have heard the learned counsel for both the parties and have also gone through the orders of the authorities below. After hearing the contentions urged at the bar by the representatives of both the sides, we feel persuaded by the assertions made by the learned A.R. It is a matter of record that at the time of making supplies to the appellant, the supplier in question was alive and doing business, hence any default or flaw on the part of the appellant cannot be taken into consideration to burden the appellant with the incidence of taxation and use as pretext to refuse the claim of refund. Even otherwise at the time of issuance of show-cause notice, the name of the supplier stood removed from the list of blacklisted persons. Besides, the letter of the department whereby name of the supplier was deleted from the blacklisted person, there was no allegation with regard to tax due and only reason which weighed with the department for declaring it blacklisted was that its name was not found existing on the given address, however, the aforesaid anomaly was resolved subsequently and upon verification of the premises, the registered person/supplier was very much found on the given business address. In this view of the fact, the adjudication order as well as order -in-original passed by the authorities below, are set aside and the show-cause notice issued is hereby cancelled. The appeal of the registered person stands accepted.

7. At this juncture, it would not be out of place to add that while .conducting sales tax proceedings, the departmental official appeared to be acting monotonously. When we revert back to the facts of the instant case wherein the supplier of the appellant was declared blacklisted just for the reason that the registered person was not existing at its business address. If the procedure as given in section 21(2) of the Act read with Rules thereunder had been followed in true spirit, the said supplier would never have been blacklisted and resultantly the appellant/ registered person before this from would have been prevented from going through the hassle of this (breed litigation. I would like to reproduce the procedure which should be followed by the department before embarking upon such venture:

Blacklisting and suspension of registration.---(1) Where the Collector [Now Commissioner Inland Revenue] has reasons to believe that a registered person is found to have committed tax fraud or evaded tax or has failed to deposit the tax due on his supplies despite having recovered it from the respective buyers or recipients of such supplies, he may suspend his registration through an order in writing and initiate such inquiry, as, deemed appropriate.

(2) After such inquiry and investigation to confirm the facts and veracity of the information and after giving an opportunity to such person to clarify his position, the Collector Now Commissioner Inland Revenue], satisfied that such person has committed any of the offences as aforesaid, may blacklist such person through an order in writing, and such blacklisting shall be without prejudice to any other action that may be taken against such person under the Act and the rules made thereunder.

(3) The inquiry in such cases shall be completed within ninety days, and show-cause notice for recovery of any evaded amount of tax and for contravention of the provisions of the Act may be issued within the period specified under section 36 of the Act:

Provided that where the records required for completion of the inquiry are not produced by the blacklisted person or a person whose registration has been suspended or by the supplies of such person, the period of ninety days for completion of the inquiry shall be deemed to have been extended by a further period of ninety days.

(4) The order for blacklisting or suspending the registration of a registered person shall be communicated .to such person the C.R.O. and to the Central Sales Tax database provided for this purpose.

(5) During the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of sales tax refund or input tax credit, and once such person is blacklisted, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such blacklisting shall be rejected through a self-speaking appealable order and after affording an opportunity of being heard to such person. (Rule 12 of the Sales Tax Rules, 2006)

Procedure for blacklisting and suspension of registration:---

In order to ensure that the Sales Tax Collectorates (Now Regional Tax Office (RTO)) follow a uniform policy for blacklisting and suspension of sales tax registration of suspected persons under section 21(2) of the Sales Tax Act, 1990 and for subsequent proceedings in such cases, the Board is pleased to make the following procedure:

Blacklisting

Under section 21(2) of the Sales Tax Act, 1990, a registered person may be blacklisted or his registration suspended pending further inquiry where the Collector [Now Commissioner Inland Revenue] is satisfied that he has issued fake invoices evaded tax or committed tax fraud.

Before blacklisting or suspending the registration of any registered person, the Collectorate [Now Regional Tax Office (RTO)] shall make efforts to confirm the facts and veracity of the information. In case of reported non-availability at the given address. It may be checked from the Registration Division whether the person submitted any information about change in address, the given address may be visited by an officer of the Collectorate (Now Regional Tax Office (RTO)), or an attempt may be made to trace the person from documents such as National Identity Card, income tax records, bank account, etc. In case of reported non-access to the premises and/or non-production of record, a notice may be issued through registered post to the person to allow access/produce records, clearly indicating that refusal or delay will result in blacklisting or suspension of his registration.

If the Collector [Now Commissioner Inland Revenue] is satisfied that the person needs to be blacklisted or his registration suspended, he shall first issue notice to the registered person and give him an opportunity of being heard. In case the registered person does not respond to the notice within the specified time, or his reply is not satisfactory, the Collector (Now Commissioner Inland Revenue) may issue order for blacklisting or suspension of his registration, mentioning reasons for the same. Copies of the order shall be endorsed to the registered person concerned, all other Sales Tax Collectorates (Now. Regional Tax Office (RTO)), the Sales Tax Wing computer system and the STARR computer system. Each Collectorate (Now Regional Tax Office (RTO)) shall circulate all such lists to their refund, and other concerned staff to ensure that no refund is paid or input adjustment is taken on invoices issued by such person.

Removal from Blacklisting or Suspension:--

After issuing order for blacklisting or suspension or registration/ enrolment, the Collectorate [Now Regional Tax Office (RTO)] should proceed to Conduct inquiry under section 21(2) of the Sales Tax Act, 1990, and in case of confirmation of the offence, proceed to take legal and penal action under the relevant provisions of the Sales Tax Act, 1990. Such inquiry may extended to suppliers and buyers of the blacklisted/suspended person to ascertain whether any inadmissible inputs or refunds have been taken by them.

Where the case, is not established against a suspected person, the Collector [Now Commissioner Inland Revenue] shall issue an order revoking the blacklisting or suspension of registration/ enrolment, endorsing copies to the person concerned, all other Sales Tax Collectorates, [Now Regional Tax Office (RTO)] the Sales Tax Wing computer system, and the STARR system for deletion from their lists. Each Collectorate [Now Regional Tax Office (RTO)] shall circulate copies of all such orders to their concerned staff for information.

Unless the Collector [Now Commissioner Inland Revenue], specifies otherwise, such orders shall have effect from the date of original blacklisting or suspension of registration/enrolment of the concerned person, so that invoices issued by him during the intervening period are acceptable.

8. I hope the concerned authorities will take the instant issue seriously and would try to implement the same so that not only the taxpayer is saved from undue harassment but that would also save the time wasted in such futile exercise on the part of the department. It is also directed that copy of the present order be sent to the DG(RTO)/DG(LTU) for necessary action.

C.M.A./181/Tax(Trib.)Appeal accepted.