I.   BACKGROUND (BG)

1.   This refers to the related Important TLQCs in trail blue, italic and double Line (a) 3223 of 30.7.25 about Input Tax & Alleged Fake Flying Invoices - SCP order against Department (b) 3069 of 28.3.25 about Input tax is OK before Blacklisting, if Purchases with Section 73 Compliance – SCP (c) 2905 of 21.11.24 about RA against blacklisting Suspension & fake invoices issues 

2.   We also refer to several Other related TLQC including (a) 1649 of 21.9.21 Department could not prove buyers’ blacklisting status at transaction time - ATIR (b) 3030 of 3.2.25 about FBR accepted Black Economy, 7.5% unregistered Manufacturer & Claimed no speed money (c) 2905 of 2905 of 20.9.24 about Fake Refunds to Tea Mafia: FBR Officer suspended & being investigated (d) 2249 of 3.3.23 about IHC dismissed Petition against ST Registration Suspension

II.   EXECUTIVE SUMMARY

1.  This appeal, filed by ----------------, challenges ST Order-In-Original No 245/15.5.24, which ordered the recovery of Rs 20,952,642 in ST, along with default surcharge and penalty 

2.  The assessing officer alleged that the appellant claimed fake input tax adjustments against invoices from a bogus supplier, -----------, inferring tax fraud due to the absence of physical goods transfer.

3.  The appellant argued that the input tax was claimed against valid invoices from a supplier who was active at the time of transactions, and payments were made through banking channels as per u/s 73 of the STA, 1990. They contended that subsequent suspension or blacklisting of the supplier should not be applied retrospectively

4.  The Tribunal observed that the supplier was active on the FBR e-portal and filing sales tax returns at the time of transactions, and the assessing officer failed to establish a nexus between the invoices and the supplier's later suspension or blacklisting. 

5.  The Tribunal emphasized that the department is responsible for taking action against the supplier and the appellant should not suffer for the omissions of others, especially since the appellant fulfilled their legal responsibilities by verifying the supplier's status and making payments through banking channels

6.  Citing various judgments, including those from the SCP and LHC, the Tribunal concluded that subsequent blacklisting does not invalidate invoices issued when the supplier was active and duly registered. Therefore, the assessing officer's order to disallow input tax adjustment was deemed without lawful justification and was cancelled/annulled, leading to the success of the appeal.

III.   DETAILS

A.   Reference and Issue

Further to KQU 3491 of 31.7.25, being an important matter, we would inform you about----------------------- (Attachment 3257.1) in the ensuing paragraph, with emphasis in bold & Underline for quick reading.

This appeal has been filed by the Registered Person against Sales Tax Order-In-Original No -----------, passed by the ---------------

B.   Brief Facts

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Being aggrieved, the registered person filed first appeal before this Tribunal on the grounds as set forth in the memo of appeal.

C.   Taxpayer / Appellant's Arguments

1 to 2. The case was fixed for hearing. The learned AR of appellant contends that the assessing officer illegally disallowed input tax adjustment through an illegal assessment order. It is argued by the AR that the input tax was claimed against valid sales tax invoices, Issued in accordance with the provisions of ST law. It is strongly agitated by the AR that the supplier of appellant was active at the time of transactions, therefore, the transactions were made in compliance of provisions of law. He also contests that the supplier was suspended /blacklisted /inactive subsequently whereas, the transactions were made much earlier than the suspension / blacklisting of supplier.

2.  He further added that the payments of tax were also made to the said suppliers through banking channel in compliance to section 73 of the Act, therefore, subsequent suspension/blacklisting of the supplier cannot be applied, retrospectively. He also contended that FBR Portal does not allow the registered person to claim input tax adjustment against invoices issued by suspended /blacklisted supplier. It is submitted that the case was neither selected under section 72B nor u/s 25 therefore, the initial proceedings and the superstructure is violative of law and not sustainable.

3.  The learned AR further argued that the payments were made to the supplier through banking instruments moreover all the requisite record was available during the adjudication proceedings. The leaned AR also placed before us copies of sales tax invoices, copies of gate passes, bank statements, copies of cheques and relevant Annexures etc.

4.  In support of his arguments, the learned AR also placed reliance on case law reported as 2023 PTD 720, 2019 PTD 298, 2015 PTD 2256 (H.C Lahore), 2017 PTD 2247 (H.C Lahore) and 2020 PTD 821 (H.С Lahore).

D.   Department Representative Submission

During the course of hearing, the learned AR, submitted complete alleged party-wise record, maintained u/s 22 of the Act i.e. sales tax invoices, transport bilties, Goods declarations, undertakings, party ledgers, copies of banking instruments, bank statements with referencing and same six card files have been placed on record and department is allowed the copies of the same, if they require so. On the other hand, the learned DR supported the order of the assessing officer and contended that the registered person had committed tax fraud by claiming input tax adjustment on the strength of fake/ flying invoices issued by dummy / fake supplier unit.

E.   Tribunal's Observations and Rationale

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F.  ATIR Conclusion and decision

For the foregoing reasons and keeping in view the ratio decided in the above referred judgments, we hold that there was no lawful justification for the assessing officer to disallow input tax adjustment. Accordingly, the order of the assessing officer on the issue is cancelled / annulled.

IV.   FURTHER DETAILS & SERVICES

Should you require any clarification or explanations in respect of the above or otherwise, or require Income Tax, Federal & Provincial Sales Tax or Withholding Tax Statement, Advisory, Return Filing or Review services, please feel free to email Mr Amsal at amsal@kasbati.co with CC to info.kasbati@professional-excellence.com, asif.s.kasbati@professional-excellence.com.