COMMISSIONER INLAND REVENUE VS MEHRAN TRADERS, 2015 PTD-LAHORE-HIGH-COURT-LAHORE 1330 (2015)

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

----Ss. 46,45, 8A & 8B---Income Tax Ordinance (XLIX of 2001), Ss. 132 & 133---Appellate Tribunal---Adjudication of appeals---Determination of facts---Duties and obligations of Appellate Tribunal---Matters relating to sales tax refunds---Scope---Appellate Tribunal was the last fact finding forum in the hierarchy of taxation laws and therefore it was bound to discharge its functions diligently---Any opinion on law, by the Appellate Tribunal would lose its credence for consideration by High Court in its advisory jurisdiction if findings of fact arrived at by the Appellate Tribunal were not trustworthy---In case true facts were not ascertainable from available record; Appellate Tribunal was vested with vast powers under S. 132(1) of the Income Tax Ordinance, 2001 to call for any particulars relating to an appeal or cause further enquiry to be made by Commissioner during the appeal proceedings---Under S. 132(3)(c) of the income Tax Ordinance, 2001; Appellate Tribunal could remand a case to the Commissioner or Commissioner (Appeals) for making such an enquiry or taking an action as the Appellate Tribunal may direct---While dealing with matters relating to refund, particularly under the Sales Tax Act, 1990; Appellate Tribunal was required to keep a balance, to ensure issuance of refund to a registered person in accordance with law and protect against fraudulent claims based on fake and flying invoices---Tax which had not been deposited in the national exchequer should not be allowed to be refunded due to a lapse on part of the authorities under a statute and comprehensive mechanism was given in the Sales Tax Act, 1990 both for expeditious issuance of refund and for protecting the national exchequer from any loss---Appellate Tribunal and the tax authorities were required to keep in mind the principle embodied in S.8A of the Sales Tax Act, 1990 which enjoined joint and several liability on registered persons in the supply chain, if a registered person receiving taxable supply from another registered person had reasonable grounds to suspect that some or all of tax payable in respect of the supplies would go unpaid---Rationale behind more than one appellate forum in the taxation laws was to cross-check the exercise of powers by the authorities and ensure proper taxation under the statute.

(b) Income Tax Ordinance (XLIX of 2001)---

----Ss. 133 & 132---Sales Tax Act (VII of 1990), Ss. 47 & 46---Reference to High Court under S. 47 of the Sales Tax Act, 1990 and S. 133 of the Income Tax Ordinance, 2001---Questions of law---Non-exercise of jurisdiction by Appellate Tribunal was a question of law.

Commissioner of Income-Tax, Companies Zone-II, Karachi v. Messrs Sindh Engineering (Pvt.) Limited, Karachi 2002 SCMR 527 = 2002 PTD 419 rel.

Agha Muhammad Akmal Khan and Tariq Manzoor Sial along with Syed Bahadar Ali, Additional Commissioner Inland Revenue for Applicant.

Mian Abdul Basit for Respondent.

Date of hearing: 24th February, 2015.

JUDGMENT

SHAHID JAMIL KHAN, J.---This judgment shall also decide S.T.R. Nos. 21 and 24 of 2011, as orders of Appellate Tribunal Inland Revenue ("Appellate Tribunal"), in all these applications, are based on a single Order-in-Original Nos. 468-470/2007 dated 8-9-2007.

2.Record was examined on learned counsel for applicant's plea regarding ignorance of fact by Appellate Tribunal that supportive documents were not produced by respondent registered person, during post refund audit. It transpired that the order-in-original, common in all appeals, was passed in case of Messrs Summayyah Enterprises (registered person). Nonetheless, it was applied to other registered persons' cases by writing a single paragraph at bottom. The attempt to ascertain the facts about production of documents, during audit proceedings remained unsuccessful because Appellate Tribunal had not examined the order-in-original properly. It is noticed that two independent orders dated 24-2-2011 were passed by Appellate Tribunal in Messrs Mehran Traders' case, in STR Nos. 20 and 21 of 2011. Reason for passing two independent even dated orders, arising from common order-in-original, is not discernable from these orders.

Such exercise of jurisdiction by Appellate Tribunal is noticed in another case also. Registered person's appeal was allowed because department had failed to show authorization for conducting audit. Case before the Appellate Tribunal was of tax fraud and both the authorities below had given concurrent findings that one person was running business with two trade names, out of which one was not registered under Sales Tax Act, 1990 ("Act of 1990"); the transactions carried out in the name of unregistered business were going tax free. Instead of ascertaining true facts, Appellate Tribunal knocked down the action against alleged tax fraud, merely on a technical ground.

3.We are constrained to observe that Appellate Tribunal is not exercising its jurisdiction in accordance with law in cases involving allegations of bogus refund claims or tax fraud based on fake flying invoices. Needless to say that Appellate Tribunal is the last fact finding forum in hierarchy of Taxation Laws, therefore, it is bound to discharge its functions diligently. Any opinion, on law, by Appellate Tribunal would lose credence for consideration by High Court in advisory jurisdiction, if findings of fact arrived at by it are not trustworthy. In case true facts are not ascertainable from available record; the Appellate Tribunal is vested with vast powers under subsection (1) of section 132 of the Income Tax Ordinance, 2001 ("Ordinance of 2001") to call for any particulars relating to appeal or cause further enquiry to be made by the Commissioner during the appeal proceedings. Under clause (c) of subsection (3) of the same Section, the Appellate Tribunal can remand the case to the Commissioner or Commissioner (Appeals) for making such enquiry or taking such action as the Tribunal may direct.

4.While dealing with the matters relating to refund, particularly under the Act of 1990, the Appellate Tribunal is required to keep a balance; to ensure issuance of refund to the registered person in accordance with law and to protect issuance of fraudulent claims, which are based on fake and flying invoices. Bottom line to be kept in mind is that a tax, which was not deposited in the National Exchequer, should not be allowed to be refunded due to any lapse on the part of authorities under relevant statute.

Comprehensive mechanism is given by legislature under the Act of 1990, both for expeditious issuance of refund and for protecting National Exchequer from any loss. Under subsection (2) of Section 8B of the Act of 1990, refund is to be issued on fulfilment of the conditions and subject to restriction specified by law. At the same time, under subsection (3) of Section 10; where there is reason to believe that a person has claimed a refund which was not admissible to him, the proceedings for recovery of same are to be completed within sixty days after due enquiry, audit or investigation regarding its admissibility. Chapter V of the Sales Tax Rules, 2006 ("the Rules") provides a procedure for claiming refund, its scrutiny and issuance. Rule 36 of the Rules allows a post refund audit after issuance of refund. Section 66 of the Act also deals with the refund, which is required to be claimed within one year and Section 67 postulates further payment in shape of compensation if due refund is not made within time specified under Section 10. The Appellate Tribunal as well as Authorities under the Act of 1990 are to keep in mind the principle embodied in Section 8A of the Act. It enjoins, joint and several liability on registered persons, in supply chain; if a registered person, receiving a taxable supply from another registered person, has reasonable grounds to suspect that some or all of the tax payable in respect of the supplies would go unpaid.

5.We have noticed that Appellate Tribunal, instead of ensuring compliance of the provisions of law, is striking down the actions based on serious allegations, without making an effort to ascertain true facts. Astonishingly, orders by authorities below are not examined properly. Like in this case Appellate Tribunal has failed to notice that how Taxation Officer could apply a single order on different registered persons for recovery of the paid refund. The rationale behind more than one Appellate Forums under Taxation Laws is to cross check the exercise of powers by the authorities and ensure proper taxation under the statute. It is alarming to notice that in refund matters, some fraudulent elements are looting National Exchequer by issuing fake and flying invoices. Appellate Tribunal should be more careful, where case is based on the allegation of tax fraud, by directing the Commissioner or Commissioner (Appeals) for production of relevant record or for making necessary enquiries and investigations.

6.It is deplorably found that Appellate Tribunal has not exercised its jurisdiction as ordained under Section 132 of the Ordinance of 2001. Hon'ble Supreme Court in Commissioner of Income-Tax, Companies Zone-II, Karachi v. Messrs Sindh Engineering (Pvt.) Limited, Karachi (2002 SCMR 527 = 2002 PTD 419) has held that non-exercise of jurisdiction by Appellate Tribunal is a question of law. Relevant excerpts from the judgment are reproduced for facility:--

"10. .Undoubtedly when a Tribunal declines to exercise jurisdiction for one or the other pretext then the basic question of law emerges for consideration whether the decision under challenge is legally justified or not. Here we are not confronted with the situation of counting the shares of the Government or private persons in the respondents organization but our problem is whether jurisdiction has been justifiably exercised by the Tribunal and High Court or not. There is no cavil with the proposition that non-exercise or misexercise of jurisdiction by a forum/Tribunal is relatable to the question of law. However, the forum/Tribunal seized with a proposition is free to form its opinion independently by exercising jurisdiction in a prescribed or settled manner. As it has been pointed out hereinabove that Income Tax Appellate Tribunal had not independently assigned any reason in holding that respondent organization was a public company because it has based its finding on some earlier decision referred to hereinabove and we were not aware that what reasons prevailed upon learned Tribunal while deciding those cases. Thus in such-like situation it was obligatory upon the Tribunal either to have disclosed the facts as well as reasons of earlier case on which reliance was placed or the respondent's case should have been examined independently. As such, we are of the opinion that the Income Tax Appellate Tribunal did not exercise its jurisdiction in accordance with law. Therefore, question of non-exercising of jurisdiction properly by the Tribunal, being a question of law, was liable to be answered by the High Court in its appellate jurisdiction under section 136(2) of the Ordinance but it failed to do so.

16. .In the present case it is observed that the Income Tax Appellate Authority did not care to call for the record or get the same placed on record so as to determine whether the respondent was a public company or a private company and in absence of material, reversal of the decision of Assessing Officer was neither legal, nor just nor proper.

17. As we have held hereinabove that jurisdiction has not been properly exercised by the Income Tax Appellate Tribunal in determining "whether the respondent was a "public company" or a private limited company and had disagreed with the opinion of successor Assessing Officer contained in order, dated 24-5-1987 as well as contrary to the provisions of law, therefore, we are inclined to remand the case to the Income Tax Appellate Tribunal for deciding the question as to whether the respondent-organization is a public company in terms of para B(1) Part-IV of 1st Schedule to the Ordinance."

(emphasis supplied)

In light of the law laid down by Apex Court, the question of law, necessarily, arises, "Whether Appellate Tribunal has exercised its jurisdiction in accordance with law?" Our answer to the question is in Negative.

7.For what has been discussed above, orders of Appellate Tribunal, in these Reference Applications, are set aside and cases are remanded to Appellate Tribunal for re-adjudicating in light of the observations and guidelines supra.

Reference Applications are disposed of accordingly.

8.Office shall send a copy of this judgment under seal of the Court to the Appellate Tribunal Inland Revenue as per section 47(5) of the Sales Tax Act, 1990.

Copy of this judgment be also transmitted to Chairman Appellate Tribunal for its circulation to all concerns.

KMZ/C-9/LOrder accordingly.