Law: Sales Tax Act, 1990

Section: 2(33A), 2(33), 3, 6, 8, 8(1)(a), 11E, 21, 22, 23, 35, 73

    Brief Facts   1. Background of the Appeal M/s Afaq Steel (the registered person / taxpayer) filed an appeal before the Appellate Tribunal Inland Revenue, Lahore, against the Assessment Order dated 13.10.2025 passed by the DCIR, Unit-02, Zone-II, LTO, Lahore, whereby input tax adjustment of Rs. 186,930,000 was disallowed and ordered to be recovered along with default surcharge and penalty under Section 11E of the Sales Tax Act, 1990. 2. Initial Allegations and Show Cause Notice During scrutiny for tax periods May 2024 and June 2024, the Department observed that the taxpayer's supplier, M/s Sanaullah EP Company, was involved in issuing invoices without valid backup and physical transfer of goods, and had not imported the goods subsequently claimed to be supplied. It was alleged that the taxpayer had only made paper transactions and claimed input tax against fake/flying invoices, thereby committing tax fraud under Section 2(37) of the Sales Tax Act, 1990. A show cause notice under Section 11E was issued, and the taxpayer's reply failed to convince the Department, leading to the impugned order. 3. Taxpayer's Defense The taxpayer contended that input tax was claimed against valid sales tax invoices issued in accordance with law; the supplier was active at the time of transactions; payments were made through banking channel in compliance with Section 73; and the supplier was suspended/blacklisted subsequently, which cannot be applied retrospectively. The taxpayer also contended that the case was neither selected under Section 72B nor Section 25 of the Sales Tax Act, 1990, rendering the proceedings violative of law. Supporting documents including sales tax invoices, gate passes, bank statements, and cheques were produced before the Tribunal. 4. Tribunal Proceedings The taxpayer's Authorized Representative (AR) argued the case, while the Departmental Representative (DR) supported the Assessing Officer's order, contending that the taxpayer had committed tax fraud. The AR placed reliance on case law including 2023 PTD 720, 2019 PTD 257, and 2023 SCMR 1797. 5. Tribunal's Findings The Tribunal held that: (i) the supplier was…