2007 PTD 1037

Sales Tax Appeals Nos.470-473/LB of 2002, decided on 15th February, 2006. Versus Sales Tax Appeals Nos.470-473/LB of 2002, decided on 15th February, 2006.

Citation2007 PTD 1037

CourtCustoms, Central Excise and Sales Tax Appellate Tribunal

MEHMOOD ALAM, MEMBER (TECHNICAL).-- Four separate show-cause notices all dated 13-11-2001 were issued to Messrs J.K. Sons (Pvt.) Limited, Faisalabad (hereinafter referred to as the appellants) by the learned Adjudicating Officer pursuant a report of the Collectorate of Sales Tax. It was inter alia alleged that the appellants had illegally received refund amounting to Rs.4,764,357, Rs.5,081,281, Rs.8,907,216 and Rs.3,345,979 respectively during the period March, April, May and June, 2000. In this manner a total amount of Rs.22,107,833 was allegedly received by the appellants in violation of sections 4,7,8 and 10 of the Sales Tax Act, 1990 that was recoverable along with additional tax and penalty under section 36 read with sections 34 and 33(4) ibid.

2. The appellants were proceeded against on the above allegations and the matter was finally decided upon by the learned Adjudicating Officer vide Order-in-Original No. 10/2002, dated 22-3-2002. Consequently the liabilities to the extent of Rs.22,098,833 were adjudged against them along with additional tax and penalty.

3. Messrs J.K. Sons had lodged four separate appeals bearing S.T.As. Nos. 470/02 to 473/02 against the above-said orders. All the four appeals involve the common question of law and merits. As such these were clubbed together for hearing and are being disposed of together through this consolidated judgment.

4. Learned counsel for the appellants has argued that the impugned show-cause notices and the orders based thereon were against the specific provisions of the Sales Tax Act and were not sustainable on account of the following grounds:---

(a) That it was mandatory on the part of the Adjudicating Officers to determine the exact amount of liability in terms of section 36(3) of the Act. The Adjudicating Officer, however, did not determine the exact amount in the impugned orders but abdicated his powers in favour of the respondent-Department thus rendering the subject orders as nullity.

(b) That the refunds in question were claimed against invoices that had been issued by the duly registered persons, reading of sections 7, 8 and 10 of the Act ibid would amply suggest that a claimant of refund or that of the adjustment of input tax has only to show that he has received the corresponding sales tax invoices from the supplier in his name and that such refund or adjustment is not prohibited in a notification issued under section 8(1)(b) of the Act. Whether the supplier of goods had deposited sales tax on such goods with the Government is not relevant to the recipient of supplies. That a tax payer cannot be forced to investigate as to whether or not his supplier has paid sales tax on the goods supplied. That the learned Adjudicating Officer had made a serious error or judgment in not holding the above-said propositions which are otherwise duly supported by the statutes.

(c) That the impugned orders were based primarily upon two assumptions. One, that the invoices used by the appellants were fake. Second, that no goods had actually been supplied against such invoices. That the subject invoices were not fake as the same had been issued by the duly registered persons. That so far as the second assumption is concerned, no evidence was brought to the records to show that no goods were ever supplied against the respective invoices. That it was mandatory for the respondent-Department to prove through proper legal evidence that no goods had actually been supplied in respect of each of the invoices. But no such evidence was produced whereas an adverse conclusion was unilaterally drawn by the Adjudicating Officer without recourse to the facts, law and evidence.

(d) That section 8 of the Sales Tax Act, 1990 was amended in 2003. Resultantly the invoices issued by the units declared as suspicious were made ineligible for input tax adjustment or refund. That prior to the year 2003, the sales tax law did not recognize any such impediment in grant of refund or adjustment.

As such the department at its own, could not deny such benefits to the appellants.

(e) That the observations recorded by the learned Adjudicating Officer in para. 11 of the impugned orders were totally -presumptive. That none of the findings enumerated in the said para 11 were supported by any evidence. That the findings were therefore baseless and the conclusions based thereon were illegal.

(f) That the learned Adjudicating Officer had alleged that it was a case of tax fraud although no facts leading to a tax fraud were mentioned in the show-cause notice. That the sole purpose of this allegation was to shift the burden of proof to the appellants. But there was no evidence to support the allegation and the burden of proof was wrongfully shifted.

(g) That even, otherwise the impugned show-cause notices and orders were primarily based not on record or evidence but on the report of Collectorate of Lahore. That no specific findings had been given by the Collector (Sales Tax), Lahore in respect of the suspected units and only a prima facie opinion had been mentioned. That the learned Adjudicating Officer illegally relied upon a prima facie opinion and burdened the appellants with a huge liability.

It was thus urged that the impugned orders be set aside, the impugned show-cause notices be vacated and the appeals be accepted.

5. These averments however were opposed by the learned DR and representative of the respondent-Department by reiterating respective paragraphs of the impugned orders. Written comments and grounds were also submitted by them in support of the contentions. Their main arguments were that:-

(a) the impugned invoices against which refund had been received by the appellants were fake and bogus in character;

(b) these invoices merely reflected paper transactions whereas no supply against these documents was actually received by the Appellants; and

6. Scheme of the refund (and adjustment) of input tax is embodied in sections 7, 8 and 10 of the Sales Tax Act, 1990. A registered person is entitled to claim adjustment or refund of the input tax in respect of a taxable supply provided that he holds a tax invoice in his name and bearing his registration number and provided further that a return in respect of such supply is furnished. These two conditions are specifically laid down under section 7(2)(i) ibid. Section 8 of the Act prescribes some of the prohibitions in respect of such refunds and adjustment. Clause (a) of section 8(1) lays down that such claim of refund or adjustment shall only be admissible if the respective goods or supplies are actually used in the manufacture or production of taxable goods or supplies. The words "input tax" in relation to a registered person is defined under section 2(14) of the Act to mean the tax levied under the Sales Tax Act on the supply of goods received by that person. In addition to that, clause (d) of section 8(1) further provides that such claim shall not be admissible against the fake invoices.

7. The above-said three conditions are relevant for the present context implying that:--

(a) the claimant of refund must be in possession of respective tax invoices which are genuine;

(b) the goods or supplies in respect of which the refund or adjustment of input tax is claimed must be received for further disposal as zero-rated exports or, alternatively, be received and utilized in the manufacture or production of taxable goods or supplies; and

There will be no entitlement to refund or adjustment of the input tax if either of the said conditions are not met.

8. It is correct that the above said clause (d) of section 8(1) ibid, pertaining to the prohibition on claims against fake invoices, was added, to the statutes vide Finance Act, 2004. But it does not mean that prior to this amendment in 2004, the refund or adjustment of input tax could lawfully be claimed against the fake invoices as well. As a matter of fact when any of the documents including a return or invoice etc. is prescribed under a fiscal law, it only implies a genuine and correct document and not a fake or bogus document. We are therefore of the view that the existence of a genuine and correct invoices for claiming a refund or adjustment was always a requirement of the legal process irrespective of the amendment that was made in 2004. This amendment at the most, could be construed as an enactment of clarificatory nature which reiterates a legal principle. As such this amendment cannot be used to provide immunity to the defaulters who had claimed refunds of input tax on the basis of fake or non-genuine documents. The afore-said proposition has been so held by the Tribunal in several appeals including inter alia the S.T.As. Nos. 2043/LB of 2001, 1545/LB of 2002, 334-48/LB of 2002 and 39/LB of 2004.

9. Records of the present appeals evidently show that the appellants were proceeded against for claiming refunds of Input tax against fake invoices in contravention of respective provisions of the sales tax law. The apparent motive of doing so was to get payments of the refund amounts to which they were not entitled to. Resultantly a substantial loss was caused to the national exchequer. Allegations of the like nature obviously fall within the description of "tax fraud" as is laid down in section 2(37) of the Sales Tax Act, 1990. The said allegations were specifically stated in the impugned show-cause notices and respectively statutory, provisions of the Act were also invoked. It is therefore, not worthwhile to suggest that it was not a case of tax fraud or that the provisions of section 2(37) were wrongly invoked. Both of us agree that the learned Adjudication Officer had correctly invoked section 2(37) ibid in the impugned proceedings and the burden of proof or lawful excuse was a legal obligation of the accused.

10. Perusal of the records of appeal shows that the allegations primarily relate to the input tax invoices which are purported to have been issued by some of the business firms located at Lahore and Faisalabad. These firms included:---

(a) Riaz Fabrics, Lahore;

(b) Al-Noor Textiles, Lahore;

(d) Jillani Weaving Mills, Lahore;

(e) Fabrino Textile Mills, Lahore;

(f) Somia Textile Mills, Lahore;

(g) Cot Link International, Lahore;

(h) Hummail Textile Mills, Faisalabad; and

(i) Messrs Weave Tex, Faisalabad.

These business firms had been declared as "suspected units" and the invoices issued by them were questionable.

11. Perusal of the records further indicates that status of each of the above-said firms was duly examined by the learned Adjudicating Officer vis-a-vis the evidence that was produced before him. The Adjudicating Officer has relied upon two reports of the Collector (Sales Tax), Lahore dated 20-3-2002 and 22-3-2002. These reports divulged that Messrs Riaz Fabrics Industries, Messrs Fabrino Textile Mills, Messrs Al-Noor Textile, Messrs Cotlinks International .and Messrs Somia Textile were not available at their given addresses; nor these units had produced their records to the sales tax authorities for audit. As such there was no evidence to believe that any of the business transactions purported to have been made by these firms were genuine. The reports also explained that serious discrepancies had been observed in the records of Messrs Manahil International, Lahore.

12. Similarly the records of the Collectorate of Sales Tax, Faisalabad were also produced before the Adjudicating Officer that provided sufficient reasons to believe that M/s. Hummail Textile Industries, Faisalabad had no physical existence, that a liability had already been adjudged against the unit and owner thereof had been booked in F.I.R. No. 1/2001 for prosecution on the charge of tax fraud. Some of the facts relating to the shady deals of Messrs Weavtex International, Faisalabad were also put forth before the Adjudicating, Officer and the same were duly considered. As such the learned Adjudicating Officer has rightly applied his mind to the facts and evidence that was produced him and has passed a speaking order in consequence with the provisions of sections 2(14), 2(37), 7, 8 and 10 of the Sales Tax Act, 1990 read with sections 36(2), 34 and 33(4) ibid. Part of the demand relating to the invoices of M/s. Cotlinks International, Lahore and Messrs Weavtex International, Faisalabad was vacated for which reasons have been recorded whereas rest of the liability was correctly enforced. The amount of liability so determined by the Adjudicating Officer is specific whereas no discretion was abdicated by him in favour of the respondent-Department.

13. We are convinced that the appellants were not, able to discharge the burden of proof at the original stage in terms of section 2(37) of the Act. No records were produced by them to show the physical transfer of goods from the suppliers to the recipient. That the mandatory conditions claiming for refund of the input tax as enumerated in paras 6 and 7 of this judgment were never met. Therefore we are not inclined to accept the subject appeals.

14. As a consequence thereof the orders impugned dated 22-3-2002 are upheld whereas the four appeals listed in the preamble of this judgment are rejected and so disposed of.

C.M.A./222/Tax(Trib.) Appeals dismissed.