Tax matters: Appellate Tribunal is final forum for determination of facts: SC

ISLAMABAD: The Supreme Court held that the Appellate Tribunal is the final forum for the determinations of the facts in the tax matters, and its findings of facts are conclusive.

A three-judge bench, headed by Justice Qazi Faez Isa and comprised Justice Yahya Afridi and Justice Muhammad Ali Mazhar, dismissed the petition of Collector of Sales Tax and Central Excise, Lahore.

During audit proceedings it was revealed that M/s Qadbros Engineering (Pvt) Ltd (respondent) had claimed input adjustment of sales tax paid earlier on purchases from their sister unit M/s Qadri Brothers (Pvt.) Ltd.

A Show Cause Notice was issued to the respondent on 2.2.1998 with the allegation that it had wrongfully claimed input adjustment of sales tax on the purchase of channels from its sister unit, Qadri Brothers (Pvt) Ltd. Whereas said sister unit M/s Qadri Brothers (Pvt) Ltd. was paying fixed sales tax on fixed production basis under the SRO.630(I)/1995 dated 02.07.1995, therefore the invoices No. 1 to 150 were issued by M/s Qadri Brothers (Pvt) Ltd. to illegally provide the benefit of input tax adjustment to its sister concern.

The record reflects that the proceedings activated from the Show Cause culminated in the Order-in-Original dated 10.06.1999 against the respondent, which was challenged in appeal before the Collector of Central Excise & Sales Tax, Lahore. The appeal was dismissed vide Order dated 07.10.1999. Eventually, the respondent approached the Customs, Excise and Sales Tax Appellate Tribunal, Lahore and filed an appeal, which rendered the decision against the Department on 21.12.2004. The Department challenged the verdict before the Lahore High Court, which was dismissed on 12-11-2020.

The Supreme Court judgment noted that the department completely failed to establish that M/s Qadbros Engineering (Pvt) Ltd (respondent) is the sister concern or a subsidiary company of the M/s Qadri Brothers (Pvt.) Ltd. (supplier). No tangible evidence was produced including the record, if any, obtained from the Securities and Exchange Commission of Pakistan (SECP) in relation to the incorporation and substratum of both the companies together with the verification of holding company of the alleged subsidiary company.

It said that no material or concrete evidence was produced by the department to substantiate the principal ground of sister concern relationship. The Tribunal had judiciously examined the pith and substance of the transaction and then rightly reached the conclusion that the respondent is not a subsidiary or holding company of M/s Qadri Brothers (Pvt.) Ltd.

The predominant allegation in the Show Cause was that M/s Qadri Brothers was paying fixed sales tax on fixed production basis; therefore the invoices No. 1 to 150 were arranged by it to provide the undue benefit of input adjustment to its sister concern M/s Qadbros Engineering (respondent).

Notwithstanding the fixed sales tax payment structure, M/s Qadri Brothers, being an independent registered person is not proscribed under the letter of law from issuing invoices as a supplier against the sales made to the buyers.

The invoices were issued under Section 7 of the 1990 Act which permits the adjustment of input tax with a rider under Sub-section (2).

If the supplier issued invoices erroneously or in violation of law then the Department should have initiated legal action for recovery against them rather than the buyer which is not the sister concern or subsidiary company of the supplier. In all fairness, if some fault was committed by the supplier while issuing invoices then the respondent could not be penalized or disqualified from claiming input tax adjustment in accordance with the law.

The Tribunal is the final forum to settle all the factual aspects in the matter and the findings of fact recorded by the Tribunal are considered final. No doubt the Appellate Tribunal, being cognizant of its jurisdiction as conferred by the law, engaged it in order to unravel the alleged claim of input adjustment by means of the stratagem adopted by the respondent assessee and also determined the true character of the transactions but did not find out that the respondent, being a subsidiary company, embarked on any fake or sham transaction or applied any feigned modus of presenting paper transactions or fake invoices issued by its sister concern with the sole intent of claiming tax benefit.

Copyright Business Recorder, 2023