Pakistan Case LawCommissioner Inland Revenue, Regional Tax Office, Peshawar Versus M/s
This matter concerns the denial of an input tax refund claim by the Commissioner Inland Revenue to a registered buyer, on the grounds that the supplier failed to deposit the collected sales tax into the government treasury. The core legal question was whether a registered buyer, having complied with payment requirements under Section 73 of the Sales Tax Act, 1990, can be held liable for the supplier's failure to deposit input tax, thereby forfeiting the buyer's right to a refund. The Supreme Court dismissed the petition, holding that where a buyer has fulfilled its statutory obligations, including payment via crossed cheque, and where the tax authority has failed to take action against the defaulting supplier (who remained registered and not blacklisted), the burden of the supplier's default cannot be shifted to the buyer. The Court established the principle that a registered buyer cannot be penalized for the tax authority's failure to recover dues from a supplier, particularly when the buyer had no means to verify the supplier's compliance and the authority failed to exercise its enforcement powers against the actual defaulter.
- Can a registered buyer be denied an input tax refund solely because the supplier failed to deposit the collected sales tax into the government treasury?
- Does a registered buyer bear the liability for a supplier's failure to deposit sales tax when the buyer has complied with the payment requirements of Section 73 of the Sales Tax Act 1990?
- Is it permissible for the tax authority to shift the burden of recovering tax from a defaulting supplier to a compliant registered buyer?
ORDER
M R. CHIEF JUSTICE UM AR ATA BANDIAL. (1). During the tax period January, 2014, the respondent, a registered person, paid the price of the goods including sales tax to his supplier through a crossed cheque in compliance with the requirements of Section 73 of Sales Tax Act, 1990 ("Act"). Subsequently, when the respondent applied for refund of input tax paid during the said period, the petitioner rejected the claim on the ground that the supplier of the respondent had not deposited the input tax due on the supplies made to the respondent. It was claimed on behalf of the petitioner that under Section 8(1)(ca) of the 'Act', the respondent was not entitled to refund where its supplier of goods or services had failed to deposit sales tax in the government treasury. The assessm ent order dated 23.12.2015 was assailed by the respondent in first appeal which was partially allowed by the Commissioner Inland Revenue (Appeals) on 19.05.2016. Being dissatisfied with the same, the respondent filed a second appeal before the Appellate Tribunal which was allowed on 20.12.2016 by directing the petitioner to recover the tax from the supplier of the respondent and thereafter to refund the amount to the respondent, The impugned judgment of the learned High Court dated 24.02.2022 affirms the view taken by the learned Appellate Tribunal.
2.It is admitted by the petitioner-authority that the supplier of the respondent is also registered with the sales tax authority. However according to the petitioner during audit it has been revealed that the supplier has not deposited the amount of input tax due on the supply made to the respondent. We asked the learned counsel for the petitioner as to what means were available for the respondent to establish that the sales tax/input tax on the supply made to the respondent had been duly paid by the supplier. He states that STARR/CREST software system reflects the current position where a registered person fails to deposit input tax on a supply made by it. Therefore, the respondent as a buyer should be aware of any default by its supplier in making the deposit of input tax.
3.The Court queried whether the record shows that the respondent's supplier was de-registered, black listed or suspended in terms of Section 21 of the 'Act' for failure to deposit sales tax due on the supply made by it. The learned counsel has informed that the record is not clear in this respect. We have read the show cause notice which makes no allegation that the respondent's supplier had been de-registered, black listed or suspended. In these circumstances, the learned two Court is below have concluded that the petitioner-authority has a remedy against the supplier of the respondent. Insofar as the respondent is concerned, it has taken the requisite steps for paying the dues on its supply, including the input/sales tax through a crossed cheque. In the absence of any official notification in the display by the petitioner's software, the respondent had no means of establishing whether the sales tax on the supply made by the supplier and recovered from the respondent had been deposited or not. The record is also silent in this respect. Consequently, the petitioner did not have a cause of action against the respondent and its remedy lay against the supplier of the goods. The petitioner-authority appears to have taken no action against the defaulting supplier. For all these reasons, we consider that to burden the respondent buyer of goods with the liability of its supplier which is also registered person actually tantamounts to transferring the responsibility of recovery of sales tax from the petitioner which has failed to take any action, to the respondent. The respondent cannot be punished for the neglect of the petitioner-authority.
4.For the foregoing reasons, these petitions are dismissed and leave to appeal is refused.
Judges on this bench
- Amin-Ud-Din Khan1,272 judgments
- Muhammad Ali Mazhar1,594 judgments
- Umar Ata Bandial (C.J)65 judgments