IMRAN MUNIR (MEMBER):--
The titled appeals pertaining to tax period July-2017 to June-2018 and July-2018 to June-2019 have been filed at the instance of the registered person. The representatives appearing on behalf of the rival parties have been heard at length. Therefore, the same are decided as under:

STA No.195/LB/2024
(Tax Period July-2017 to June-2018)

2. This appeal has been directed against the impugned Order-in-Appeal dated 04.12.2023 passed by the learned Commissioner Inland Revenue (Appeals-II), Lahore (“CIR(A)”).

3. The facts in brief leading to the instant appeal are that during investigation proceedings in the case of M/s. Republic Women Wear having NTN 3142575-5 u/s 38 of the Sales Tax Act, 1990 (“the Act”); it was observed by the Deputy Commissioner Inland Revenue (“DCIR”) that the registered person was involved in tax fraud as envisaged u/s 2(37) of the Act by way of concealing the actual sales in monthly sales tax returns for the tax periods July-2017 to June-2018. On the basis of said discrepancy, proceedings were initiated by way of issuance of a show cause notice. In response thereto, the learned AR of the registered person attended the proceedings and filed written reply along-with supporting documents, which were examined by the DCIR and found unsatisfactory. Resultantly, the proceedings culminated in passing of assessment order dated 10.07.2023, wherein the registered person was directed to pay sales tax amounting to Rs.17,413,931/- u/s 11(1)/(3) along-with default surcharge u/s 34 and penalty u/s 33 of the Act.

4. Feeling aggrieved of the said treatment, the registered person preferred first appeal before the learned CIR(A), who vide order dated 04.12.2023 rejected the appeal of the registered person by way of confirmation of the assessment order dated 10.07.2023.

5. Still discontented, the registered person has come up in further appeal before this Tribunal on the strength of following grounds taken as per memo of appeal:-

“1. That the order No. O07-A-II dated-04/12/2023 confirmed by CIR (Appeal-II) is bad in law and against the law and facts of the Case.

2. That the Appellate order confirmed on the basis of Show Cause Notice (Letter) is illegal as the foundation of action was illegal, the whole super structure built thereon is not valid. The Appellant has replied the department dated 24/03/2027 which has not been considered.

3. That the Appellant has received just one single notice which was served on him through personal service dated 16/03/2023, he denied service of notices dated11/04/2023, 22/05/2023, 03/07/2033 and 10/07/2023.

4, That the Appellant denied the charges levied in the show cause notice as he has filed his sales tax monthly returns for the aforesaid period as per his sales and invoices issued. The sales so confronted in the show cause have no connection with the registered person. The charges and allegations of suppressed sales are ill founded and without documentary evidence.

5. That the show cause notice (Letter) is based on un-verifiable information through raid on rival competitor of the registered person (Appellant). The department has no concrete and authentic evidence in respect of this assertions levied in show cause notice. The show cause notice is not supported by any evidence rather an alleged claim that the department is in receipt of information during course of investigation of M/S Republic Women Wear having NTN 3142575-5 under section 38 of the Sales Tax Act 1990. The show cause notice (Letter) is also silent regarding the kind of information whether it is in form of soft copy or hard copy, and on the basis of this incomplete and unauthentic information the department has made up his mind that the registered person is involved in tax fraud. The assertions of the department are nothing, but estimation on conjectures, surmises, suspicions, guess work and purely on the basis of presumption and assumption.

6. That the DCIR has failed to state any provision of the Act which authorize him to estimate or assumed tax liability of appellant by proposing to enhance the sales at sky high figures on the basis of alleged suppression of sales which has no concern with the registered person which is purely on assumption and presumption, it obviously appears that the DCIR has built the castle in the air.

7. That the articles shown in the table of impugned order are purely ladies wear, which has nothing to do with the registered person. The DCIR utilized the powers conferred under section 11(2)(3) of the Act, further he also referred sections 2(33), (41), (44), (46), 3, 6(2), 7, 22(1), 23, 26 read with 2(37) of the Act, in the show cause notice. The Appellant has gone through all the above referred provisions of the Act, however, could not find any power which authorize him to estimate the tax liability on the basis of any assume estimate sales or production on the basis of assumed information received through raid of third party and raid was made on third party premises, but data so collected is of registered person M/S Republic by Umer Farooq.

8. That the registered person denied the data alleged in the impugned order as the record was neither available with him nor it is recovered from his business premises. The registered person has no control over the data/record fetched by the department through raid of third party and in no way be answerable to the record which was never in possession and custody of the registered person. Further the registered person has made no sales and no information regarding the sales mentioned in the impugned order.

9. That the department had no sufficient information or evidence that the registered person has committed any tax fraud. Even after resuming third party record in custody from her premises during raid and conducting complete inquiry and investigation of M/S Republic Women Wear, the impugned order lacks any single sufficient evidence regarding violation of provisions the Act which can be considered as tax fraud, as defined under the Act i.e. knowingly, dishonestly or fraudulently and without lawful excuse doing any act or causing to do any act in contravention of duties and obligations imposed under the Act. The charges rose through impugned order are merely based on pure assumptions/presumptions and under the garb of alleged charges with Sweeping statements/remarks and without any evidence in Support of allegations which is nothing but whims and conjectures. In case of tax fraud it was the prime responsibility of the tax department to provide the documentary evidence regarding non relevancy of the inputs claimed by the respondent with the goods manufactured and supplies as per provision of section 7 and 8 of Act. It is also alleged in the impugned order of concealment of supplies, and without any single proof leveled the allegations no evidence of their claim of fake supplies brought in record. In cases of tax fraud it is a well decided principle that initial burden of proof always lies on the department's side and not on the accused person, which has never been fulfilled by the department in this case. In this regard I have relied on numerous decision of appellate forums citation of some are listed below-

PTCL 2016 CL 449 (H.C. Lahore)
PTCL 2004 CL 1 (H.C. Karachi)
PTCL 2014 CL 262 (ATIR Lahore)
PTCL 2014 CL 194 (ATIR Lahore)

2018 PTD 108 (LHC) CIR vs. Ali Hassan Metal Works wherein it has been held that "the burden of fraud was upon the department and could not be shifted upon the taxpayer."

2016 PTD 2744 (Trib.) the Tribunal held that "Allegations of Tax fraud u/s. 2(37) could not be leveled against the taxpayer merely on the basis of conjectures and surmises".

10. That the impugned show cause notice that is issued on a wrong legal presumption is totally unlawful. Superstructure raised on wrong foundation remains defective and whole of it crumbles on identification of the said defect. It is settled law that if the basic show cause notice is illegal and void, then any superstructure build thereon is also illegal and liable to fall. The Honorable Lahore High Court in a judgment reported as Pepsi Cola International reported as 2017 PTCL SO HC (Lahore).

11. That the data (mere information of excel Sheets in Computer) so received by the department through raid of third party on her premises can never be considered as reliable and authentic, and the department cannot use this information as sacred and authentic information for the Appellant (registered person) and made him liable to pay Sales tax along with further tax and default Surcharge,

12. That the apparent from the letter (show Cause notice) that the heading of the letter did not show that it was "SHOWCAUSE NOTICE" issued under the Provision of the section 11 of the Act. As each sub section of section 11 including sub section 2 specifically require that an officer before passing an assessment order u/s. 11(2) shall issue a notice to "SHOW CAUSE" to taxpayer. However, it can be observed from the above letter that it was not a show cause notice U/S 11, the heading and first Para itself only

6. refer that the DCIR shared some information and data received through raid of third party and on the basis of that un-authentic information raised certain queries relating to authenticity and non-declaration in his monthly tax returns,

13. That the DCIR while passing the order has based on total suspicion, conjectures, surmises, presumption and assumptions and estimations of production and sales of appellant on the basis of alleged computer data recovered from the raid of third party on her premises and estimated values of sales Tax Rate 6%, whereas the DCIR totally failed to state any provision of the Act which authorizes him to estimate or assumed tax liability of appellant by enhancing the sales at sky high Figures.

14. That the DCIR in the impugned order has totally based on the record/data recovered in the form of excel sheets through raid U/S 38 from the premises of M/S Republic Women Wear NTN 3142575-5 by the deputed team of tax officials. The data so recovered from other one's premises be regarded as authentic on which the registered person was never in control and possession. The impugned order is also silent regarding information about nature of data received whether in shape of hard or soft form. The show cause notice is also silent regarding mode of actual delivery and possession of goods U/S 3 of the Sales Tax Act 1990. The show cause notice is also silent regarding purchase of raw materials and supply thereof.

In view of the above it is therefore requested that the order may kindly be vacated/cancelled as are based on animated, vigorous and frivolous information which has no legs to stand and just to entangle the Appellant in the clutches of FBR. The information so received through raid was recovered from third party premises and she willfully and deliberately fabricated the information Just to shift her evasion of tax on the shoulders of the Appellant. The department was in itself were in a knowledge regarding some evasion of tax on her part that is why he has made raid and recovered data.”

The learned counsel appearing on behalf of the registered Person contested the case on the strength of aforesaid grounds of appeal submitting that the learned CIR(A) arbitrarily and without applying independent judicious mind has confirmed the order passed by the learned DCIR. He averred that the allegation leveled by the department on the basis of suppression of sales is not based on facts but surmises and conjectures. He stated that before the authorities below the registered person of the case in hand has categorically denied the allegations leveled in the show Cause notice on the ground that the registered person has rightly and correctly filed his sales tax returns for the tax period under consideration. He further stated that the sales so confronted in the show cause notice have no connection with the registered person. He further stressed that any data retrieved from a third person, being an independent entity having no nexus with the appellant can be used against him. The data so retrieved bears no signatures of any person and has been used against the appellant purely on the basis of conjectures surmises. To substantiate his point of view, the learned counsel vehemently stated that the registered person provided complete documentary evidence in the shape of Purchase Invoices, Purchase Register, Sales Tax Return etc, which has also been produced the same before us. On the strength of these assertions, he sought vacation of the orders passed by both the authorities below.

7. In rebuttal to the line of arguments adopted by learned counsel, the learned DR has apprised the court that before finalization of assessment in the case in hand, the registered person was afforded an adequate opportunity to provide reconciliation statement along-with supporting documents but he failed to do so at assessment stage. Therefore, he prays for confirmation of the same.

8. We have heard both the sides and have perused the available record. From perusal of documents i.e. Purchase Invoices, Purchase Register, Sales Tax Return etc, it appears that the allegations of tax fraud u/s 2(37) of the Act were totally based on assumptions and presumptions. We have noticed from the relevant records that the proceedings were initiated against the registered person on the basis of data (mere information of excel sheets in computer) fetched/retrieved by raid on M/s. Republic Women Wear, which had no connection with the data/record of the registered person. We further observed that without considering the whole scheme of law this case has been made as involving tax fraud, whereas, for tax fraud, it should be considered that ”˜tax fraud’ means knowingly, dishonestly or fraudulently and without any law full excuse shall amount to commission of tax fraud, If accused does any act or causes to do any act or omits to take any action or causes the omission to take any action In contravention of duties or obligations imposed under the Sales Tax Act, 1990. For the determination of allegation tax fraud, initial burden to prove the tax fraud, lies on the department. Reliance Is placed on PTCL 2004 CL. 1 and 2015 PTD 2256 (Lah H.C). Once burden is discharged by the department only then the burden Is shifted to the assessee for establishing that allegations are illegal and wrong by reliance on reported judgment cited as 2015 PTD 1490 and 2002 SCMR 134. Therefore, the whole scheme of law, which was applied on this case, is illegal and misconceived and it is a settled law that, “When the base is illegal, the whole super structure would fall on the-ground”. Reliance is placed on a reported judgment cited as 2007 SCMR 307 and 2007 SCMR 818. Hence, this court found that in this case, neither the appellant is involved in any ingredients constituting tax fraud nor any evidence provided by department just stating subsequently blacklisting the supplier. It has by now been settled by the Superior Courts that any statutory provision, which has been couched with negative language, such provision shall be mandatory and non-observance thereof shall be fatal and consequently any assessment without complying the aforesaid requirement, shall render such order unlawful and void ab-initio. Reliance in this behalf is placed on 1995 SCMR 1249 and 2015 PTD 448 Wherein it has been held as under:-

i. 1995 SCMR 1249 in re: Shujat Hussain vs. State at Page-1260

“Rule in that where any provision couched in negative language requires an act to be done in a particular manner that it should be done in the manner as required by the statute otherwise such
act will be illegal.”

ii. 2015 PTD 448 In re: Arslan Poultry (Pvt.) Ltd vs. Officer Inland Revenue (Page-452 of the report)

“When the law requires a thing/Act to be done in a particular manner, it had to be done in that manner
alone and such dictate of law cannot be taken as technical”

Now the above principle has to be examined on the touchstone of two principals of law settled by the Superior Courts. Reliance is placed on 2019 PTD S65. It was held at Para-11 Page-569 of the report as under:

“That a thing required to be done in a particular manner must be done in the manner and none other”

There is a consensus of opinion amongst the Superior Courts that anything done other than in the manner provided shall not be sustainable in the eyes of law.

It is also a settled law as held in a case reported as 2019 PTD 592 (Para-16, Page-560 of report) as under:-

“It is settled law that if the basic order is illegal and void any super structure built thereon is also illegal and liable to fall.”

2 Since the impugned order has been passed on the basis of wrong information gathered through investigation u/s 38 of the Act from M/s Republic Women Wear having NTN 3142575-5 which has no connection with the Appellant/Registered Person i.e. M/s. Republic by Umar Farooq; and is based on surmises and conjectures, therefore, it renders the orders passed by both the authorities below to be void ab-initio and illegal and therefore vacated. We order accordingly.

STA No.196/LB/2024
(Tax Period July-2018 to June-2019)

10. Now, we come to the instant appeal assailing the Order-in-Appeal dated 04.12.2023. We have observed that the issue involved in the instant appeal is exactly identical to that of Registered Person’s appeal bearing STA No.195/LB/2024, which has been decided in earlier part of this order. Therefore, the same decision shall also be applicable in the instant appeal. We order accordingly.