Sales Tax Act 1990 does not provide for reverse onus of proof declared Supreme Court of Pakistan

Issues:
• Appellant: Commissioner Inland Revenue Zone-IV, Large Taxpayer Unit, Karachi
• Respondent: M/s Al-Abid Silk Mills Ltd.
Factual Background:
• The respondent (taxpayer) is registered under the Sales Tax Act 1990 and engaged in manufacturing and export.
• Based on a report from the Directorate General, Intelligence and Investigation (I&I), the Deputy Commissioner Inland Revenue served a show cause notice to the taxpayer on 31.01.2014.
• The notice alleged that eight distinct entities were involved in issuing fake/flying invoices without depositing tax in the treasury.
• The taxpayer had claimed input tax against invoices issued by these eight suppliers.
• The taxpayer was asked to explain why the input tax claimed against these alleged fake/flying invoices should not be recovered along with default surcharge and additional tax.
• The show cause notice was adjudicated against the taxpayer via Order-in-Original No.30/2013 on 28.05.2014.
• The taxpayer's appeals were dismissed by the Commissioner Inland Revenue (Appeals) and the Appellate Tribunal Inland Revenue.
• The taxpayer then invoked the jurisdiction of the High Court under section 47 of the Sales Tax Act 1990.
• The High Court answered the proposed questions against the Department.
• The Commissioner Inland Revenue sought leave against the High Court's judgment dated 27.03.2018.
Contentions:
• Department's argument: The eight suppliers were involved in issuing fake/flying invoices, so the invoices against which the taxpayer claimed input tax were presumed to be fake, making the input tax inadmissible under section 8(1)(c)(a) of the Sales Tax Act 1990.
• Taxpayer's argument: The Department failed to establish that the invoices were fake/flying or that the suppliers had not deposited the tax in the government treasury.
Rule:
• Sales Tax Act 1990:
- Section 2(14): Definition of "input tax"
- Section 2(20): Definition of "output tax"
- Section 2(41): Definition of "taxable supply"
- Section 2(46): Definition of "value"
- Section 7: Determination of tax liability
- Section 8: Tax credit not allowed
- Section 22: Records (amended by Finance Act 2013)
- Section 25: Audit
- Section 38: Authorized officers to have access to premises, stocks, accounts and records
- Section 47: Reference to High Court
Analysis:
• The Court noted that the show cause notice was issued based solely on the I&I report without proper audit or inquiry.
• The Department failed to verify whether the invoices were actually fake/flying or if the suppliers had deposited the tax.
• The Court emphasized that the burden of proof lies with the Department to establish that tax has not been paid.
• These judgments established that fiscal statutes should be interpreted based on what is clearly stated, without presumptions or implications.
• The Court noted that unlike some other laws (e.g., Customs Act 1969, National Accountability Ordinance 1999), the Sales Tax Act 1990 does not provide for reverse onus of proof.
• The Court emphasized that the Department has the burden to establish facts on the standard of balance of probabilities.
Conclusion:
• The Supreme Court dismissed the Department's petition for leave to appeal.
• The Court found the High Court's interpretation of the Sales Tax Act 1990 to be correct and unimpeachable.
• The Court upheld the High Court's decision in favor of the taxpayer.
No specific costs or penalties were mentioned in the judgment.
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