Law: Sales Tax Act, 1990

Section: 25,8(1)(c)(a)

Law: Constitution of Pakistan, 1973

Section: 10A

(a) Sales Tax Art (VII of 1990)——Ss. 25 & 8(1)(c)(a)—Constitution of Pakistan, Art. 10A—Allegation of issuing fake/flying invoices and claiming input tax against such invoices—Liability raised against tax payer based on presumptions—No attempt made by the Department to verify the invoices—In the present case the show cause notice was issued in a mechanical manner— Allegations were vague and the facts had not been verified—Moreover, the taxpayer was asked to establish that its suppliers i.e. the eight distinct entities had not made supplies and that they had not deposited the output tax in the government treasury—It was on this basis that it was presumed that the invoices were fake/flying and thus the input tax adjusted against such invoices was alleged to be inadmissible— Taxpayer was further asked to produce documents which were not required to be maintained under the Sales Tax Act, 1990 (‘Act of 1990’) at the relevant time—Department had issued a vague show cause notice pursuant to a report, without first making an inquiry of its own to verify the facts relating to the eight entities i.e. whether they had deposited the tax in relation to the supply made to the taxpayer. Before the issuance of the show cause notice no meaningful effort was made by the sales tax officials to conduct an audit nor was a proper inquiry made by exercising powers conferred under the Sales Tax Act, 1990 (‘Act of 1990’) in order to verify the allegations made in the report. The show cause *notice was based on vague allegations and an assumption that, since some of the supplies were made by the eight entities which were involved in the issuance of fake/flying invoices, therefore, the invoices relating to such supplies must also have been of the same status. It was not the case of the Department that the eight entities were never engaged in business nor had made supplies. The taxpayer was asked by the sales tax authorities to provide documents which, at the relevant time, were not required to be maintained by a registered person. When the department alleges that a registered person is liable to make the payment of tax and the same has not been levied or charged, the former is burdened…

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