Law: Sales Tax Act, 1990

Section: 73, 34(1)(c) , 33(13)

🔹 Core Issue Whether denial of input tax, levy of further tax, and imposition of surcharge/penalty were justified when transactions were made with a registered and active supplier at the time of supply. 🔹 Key Facts The taxpayer (M/s Ibrahim Fibre Limited) made supplies worth Rs. 202.3 million to M/s Agreeable Textile Industry (Pvt.) Ltd. Department alleged fake/flying invoices and tax fraud. Taxpayer: Charged and paid 18% sales tax Complied with Section 73 (banking channel payments) Provided full documentation (invoices, bank statements, gate passes, etc.) Deposited tax under protest before adjudication 🔹 Department’s موقف Transactions were bogus Records were fabricated Supplier involved in fraud network Tax, further tax, surcharge, and penalty were imposed 🔹 Tribunal’s Findings 1. Supplier Status Supplier was registered and active at time of transactions Later blacklisting cannot invalidate past genuine transactions 2. No Evidence of Fraud Department failed to prove: No actual supply Any collusion by taxpayer Case based on assumptions and third-party allegations 3. Input Tax Denial Illegal Input tax cannot be denied when: Supplier is active Transactions are documented Payments made via banking channels 4. Further Tax Not Applicable Under Section 3(1A): Applies only to unregistered persons Here, buyer was registered → Further tax unlawful 5. Payment Under Protest Does not mean admission of liability Taxpayer retains right to: Appeal Claim refund 6. Retrospective Application Invalid Amended definition of tax fraud (Finance Act 2024): Cannot apply retrospectively 7. Burden of Proof Lies on department Must provide concrete evidence, not presumptions 🔹 Final Decision Impugned order set aside All demands: Sales tax Further tax Surcharge Penalty → Declared unlawful 🔹 Key Legal Principle 👉 A taxpayer cannot be penalized for supplier’s later misconduct if: Supplier was active at time of transaction Buyer fulfilled legal and documentary requirements No direct evidence of fraud exists ORDER NASIR MAHMUD (Member):This appeal has been preferred against the order dated 25.10.2024 passed by the Deputy Commissioner Inland…