2010 PTD 1675
MHER MUHAMMAD ARIF SARGANA, MEMBER (JUDICIAL).--- This appeal has been directed against Order-in-Appeal No.2724/2008 dated 22-10-2008 through which the learned Collector (Appeals), had upheld, the Order-in-Original No. 28 of 2008 dated 6-9-2008.
2. The facts, giving rise to this appeal, are that during post refund audit of refund claims of the appellant for the tax period 1/2005 and 11/2005, 02/2006 to 04/2006 and 06/2006, it was observed that the appellant received refund of Rs.1,10,37,064 deliberately, knowingly and fraudulently against fake/fling invoices issued by M/s. A.H. Traders, which was blacklisted and thus contravened sections 7, 8, 8A, 10, 11, 23 and 26 of the Sales Tax Act, 1990 read with sections 2(14), 2(37) and 73 ibid. The appellants were, therefore, charged with violation of above said sections and were called upon to show cause as to why sales tax amounting to Rs.1,10,37,064 may not be recovered along with default surcharge under sections 36(1) and 34 and why penal action may not be taken against them under section 33 ibid. The adjudication proceedings culminated into passing of an order in original establishing the recovery of above mentioned, amount of sales tax. Being aggrieved, the appellant went in appeal before the learned Collector (Appeals), who vide impugned Order-in-Appeal No.2724/2008 dated 22-10-2008 dismissed the appeal and upheld the Order-in-Original No.28/2008 dated 6-9-2008. Hence this appeal.
3. The main grounds, as urged in the memo of appeal, are as under:---
(a) That the main charge against the appellant is that during the post refund audit for the tax period May, 2005 and June, 2005 it was observed that the appellant received refund of Rs.1,10,37,064 against fake/flying invoices issued by M/s. A.H. Traders which was blacklisted vide letter No.04/06/Misc/C&E/14926, dated 17-11-2007.
(b) From the above mentioned date of blacklisting of M/s A.H. Traders it is clear that the appellant has transacted with its buyer in the year 2005 on that time the unit was not declared blacklisted. It is pertinent to mention here that the audit of the appellant has already been conducted by the department itself which depicts the factual position of the appellant's business.
(c) That the appellant has transacted with the alleged suppliers against proper sales tax invoices issued under section 23 of the Sales Tax Act, 1990 and proper payment has been made against alleged transaction through banking channel as required under section 73 of the Sales Tax Act, 1990.
(d) That the alleged supplier was neither declared defaulter nor any, take transaction was made by the appellant during the period in question. Nevertheless, payments against alleged transaction (when required) have also been made via banking channel as provided under section 73 of the Sales Tax Act, 1990.
(e) Under section 3(3)(a) of the Act responsibility to pay output tax is that the supplier and could not be extended to the buyer the aforesaid section describes as "(3) The liability to pay the tax shall be,---
(a) in the case of supply of goods of the person making, the supply and
(b) in the case of goods imported into Pakistan of the person importing the goods.
(c) That the charge of tax fraud has no legal consequence in the light of judgment of Hon'ble Sindh High Court, Karachi in the case of M/s. Al-Hilal Mines Stores and others v. The Collector of Sales Tax and Federal Excise (East) Karachi and others as reported as (2004 PTD 868) wherein it has been laid down "in order to attract the provision of tax fraud the initial burden lies on the department and not on the accused person".
(f) Nevertheless purchases of the appellant pertain to the period when the alleged supplier was not included in the list of blacklisted units and its subsequent inclusion in the list of blacklisted, units vide Order No. 04/06/Misc/C&E/14926, dated 17-11-2007 cannot be operated retrospectively. In this context reliance is placed on the judgment of august Supreme Court of Pakistan in the case of Government of Pakistan v. M/s. Village Development Organization as reported (2005 SCMR 492) wherein it has been laid down "it is well-settled principle of law that the executive order or notification wich confer right and beneficial, would be given retrospective effect and those which adversely affect or invade upon vested right cannot be applied with retrospective effect."
(i) On the same point the Hon'ble Lahore High Court, Lahore decided in case of M/s. Brother Engineering (Pvt.) Limited reported as (2004 PTD 2928) that "It is well-settled that a notification or an executive order adversely affecting the right of any person cannot operate retrospectively but if the same confers any benefit it can be made applicable retrospectively."
(ii) The Hon'ble Supreme Court of Pakistan in case of M/s. M.Y. Electronics Industries reported as 1998 SCMR 1404 1998 PTD 2728 has laid down the same principle "A notification operates only prospectively and not retrospectively."
(iii) It is also confirmed by the Article 25 of the Constitution of Islamic Republic of Pakistan that "All citizens are equal before law and are entitled to equal protection of law."
4. The respondents filed parawise comments. They submitted that:---
(i) Needs no comments.
(ii) Not admitted. Sales Tax is based on, self assessment tax deposit system, investigation of any taxable records are normally conducted on past taxable activities, In the case under appeal the supplier was blacklisted by the department after thoroughly exhausting blacklisting proceedings as prescribed in section 21 of the Sales Tax Act, 1990 read with Rule 12 of S.R.O. 555(1)/ 2006 dated 5-6-2006 on the basis that such blacklisted suppliers were found untraceable/involved in abnormal/fake tax activities. In view of which it is clear that question raised by the appellant regarding the supplier were not declared suspected-blacklisted at the time of transaction is ingenuine as the suppliers were blacklisted on their past fake/suspicious/abnormal business activities and the same facts were communicated to the appellant, through a show-cause notice and the said show-cause notice was finalized into an Order-in-Original after providing sufficient opportunity of being heard and to clarify the view point of the appellant to prove the genuineness of the transaction made with blacklisted suppliers which the appellant failed to prove.
(iii) Not admitted. The appellant has failed to submit any such documents so far. Moreover, it will not be a new information for the Hon'ble Court that the payment proofs are not very difficult documents to manage e.g., just to clear the court if someone issue a cheques to another person and on the other hand received an amount in cash equal to the face value of that cheques would there be any problem of course not. Therefore anything which is prepared in backing of any fake transaction has no legal status.
(iv) Not admitted. Both the contentions i.e. the supplier was not blacklisted at the time of transactions were made and the second one that the appellant has made transactions with backing of payment proofs are required under section 73 of the Sales Tax Act, 1990 were replied in detail in the preceding paras i.e. I and II of the grounds of appeal.
(v) Not admitted. The appellant has totally ignored the provisions of section 8A which is self-explanation and reads as under:---
8A. Joint and several liability of registered persons in supply chain where tax unpaid.--- where a registered person receiving a taxable supply from another registered person is in the knowledge or has reasonable grounds to suspect that some or all of the tax payable in respect of that supply or any previous or subsequent supply of the goods supplied would go unpaid, such person as well as the person making the taxable supply shall be jointly and severally liable for payment of such unpaid amount of tax:
(vi) Moreover, the appellant has ignored the fact that they had made purchases from blacklisted supplier and has made just paper transaction with the blacklisted supplier therefore, the question whether retrospective effect applied for rejection of any paper/ fake transaction is ingenuine ab initio. It is also important to mention here that the cases referred by the appellant have no relevancy with the case in hand. Moreover there are several cases in which, the same issue has been decided by the apex courts in favour of the department. Therefore, the view point of the appellant is regretted on the basis that they had committed tax fraud by receiving refund, on just paper transactions without any backing of any physical movement of goods and has caused national exchequer huge loss which is requested for orders of the Hon'ble court to deposit the principal amount of tax along with penalty so that such types of tax fraud may be reduced in future.
5. Arguments were heard. The only argument of the learned counsel for the appellant is that the appellant purchased goods from M/s. A.H. Traders upto 06/2006 through valid sales tax invoices and the payments were made through banking channel in terms of section 73 of the Sales Tax Act, 1990, whereas the supplier M/s. A.H. Traders was blacklisted vide Order No.04/06/Misc./C&E/14926, dated 17-11-2007, meaning thereby that at the time of making business transactions with the supplier, they were having status as "operative". In this way the appellant committed no irregularity/fault in making business transactions with the suppliers having "operative" status. He further contended that if the supplier was blacklisted later on, it could not have a retrospective effect. In support of his contention the learned counsel for the appellant has produced a number of judgments of the superior courts.
6. The learned Auditor defended the impugned orders.
7. We have heard both the parties at length and perused the record available before us. The appeal is tenable. There is only one point, which is to be considered by this court. During post refund audit of refund claims of the appellant for the tax period 11/2005, 02/2006 to 04/2006 and 06/2006, it was observed by the department that the appellant received refund of Rs. 1,10,37,064 deliberately, knowingly and fraudulently against fake/flying invoices issued by M/s A.H. Traders which was blacklisted. It is observed that M/s A.H. Traders was blacklisted vide Order No. 04/06/Misc/C&E/14926, dated 17-11-2007. At the time of making business transactions with the supplier by the appellant, the suppliers were not declared as blacklisted and were having "operative" status. The order through which M/s A.H. Traders were declared blacklisted is an executive order and while relying on 2005 SCMR 492' Supreme Court of Pakistan in the case titled "Government of Pakistan v. M/s Village Development Organization" we hold that the orders or notifications, which confer rights and are beneficial, would be given retrospective effect and those which adversely effect or invade upon vested rights cannot be applied with retrospective effect. Though, the respondent in the parawise comments has mentioned that there are several cases in which the same issue has been decided by the apex courts in favour of the department, yet they have not cited or produced even a single judgment to rebut the contention of the appellant.
8. In view of what has been discussed above, the appeal is accepted and the impugned orders-in-original as well as order-in-appeal are set aside.
C.M.A./51/Tax (Trib.) ????????????????????????????????????????????????????????????? Appeal accepted.