Inland Revenue Appellate Tribunals (IRATs) have struck down the show-cause notices issued by the Federal Board of Revenue on the assumption of tax fraud under section 8A of the Sales Tax Act, 1990, in cases where registered persons are not intentional defaulters.
Referring to judgements of the IRATs on tax frauds, tax experts said the section 8A of the Sales Tax Act is related to the ''joint and several liability'' of registered person in supply chain where tax was unpaid. The section 8A of the Sales Tax Act, 1990 clearly states that whenever the registered person is in the knowledge or has reasonable ground to suspect that some or all of the tax would go unpaid from the supplier''s side then it would be the joint liability of such person as well as the person making the taxable supply for payment of such unpaid amount of tax.
While in the instant case, the position is very different because the registered person/appellant, after verifying the status and genuineness of the suppliers made the payments of input tax to the suppliers and fulfilled all the legal responsibilities on his part. So the appellant is neither jointly not severally liable for making payment of such unpaid amount of tax. Thus, the department was not within the ambit of law while invoking the provision of sections 8 and 8A of the Sales Tax Act, 1990 against the registered person, so the proceeding conducted in pursuance thereof could not be held legal proceedings.
The mandatory condition precedent for tax fraud is that registered person has acted knowingly, dishonestly or fraudulently and without any lawful excuse committed tax fraud. Even the audit/contravention report coupled with the show-cause notice did not spell out or it could be proved by the department that the registered person had claimed illegal input tax adjustment with prior knowledge regarding fakeness of the sales tax invoices. The registered person was not intentional defaulter and was equally cheated by the fraudulent persons and fraudsters charged tax from the registered person. The tax department had wrongly invoked the provision of S.2(37) of the Sales Tax Act, 1990 in the show-cause notice which was liable to be struck down.
Resultantly, the show-cause notice is hereby set aside and the impugned orders are cancelled/annulled, tax experts added. In this specific case, the unit had purchased the entire raw material from the registered persons and also obtained sales tax invoices issued under the provisions of section 23 and the payments were made in terms of section 73 of the Sales Tax Act, 1990. The unit fulfilled all the requisite conditions laid down in section 7 for claiming input tax were complied and paid the sales tax to the suppliers as well.
Now, this is the entire liability of the suppliers to deposit the tax in terms of section 3(3) of the Act especially when they were registered with the Sales Tax Department and were filing their monthly returns and summaries with it. Further this is also the foremost responsibility/duty of the Sales Tax Department to check veracity as to whether the suppliers are depositing sales tax in the government exchequer or not. But, the department has failed to fulfil its official obligations in the instant case and is trying to shift onus on the appellant''s shoulders to burden him for depositing the Sales Tax payments twice which act is extremely unwarranted, the tribunal added.