Commissioner Inland Revenue (Refund Zone), Regional Tax Office, Peshawar Vs M/s AGE Industries (Pvt) Ltd, Peshawar

PESHAWAR HIGH COURT, PESHAWAR.

ORDER SHEET

Date of Order/ Order or other Proceedings with Signature of Judge. Proceedings

27/01/2026 STR No. 131-P/2025 Present: Mr. Muhammad Alamzeb Khan, Advocate along with Sharifullah Assistant Director (Legal).

Mr. Fawad Aziz Awan, CFO of respondent/company.

SYED ARSHAD ALI, J.- This Sales Tax Reference under section 47 of the Sales Tax Act, 1990 (“the Act”) has been filed by the petitioner/department against the order dated 19.09.2025 passed by the worthy Appellate Tribunal Inland Revenue, Peshawar Bench (“the Tribunal”) whereby the respondent’s appeal was allowed.

2.The present issue relates to the input adjustment/refund of sales tax for the period from July 2011 to August 2011. A show cause notice was issued to the respondent on 23.08.2021, seeking an explanation on the basis that, as per the available record and verification report dated 22.12.2017, it was observed that the respondent had received supplies from M/s I.G. International (owned by Aqeel Ahmad) during the period from July 2011 to August 2011. However, the said supplier was blacklisted with effect from 18.07.2013. Consequently, the invoices relating to those purchases could not be entertained for the purpose of sales tax refund or input tax credit, and the refund claimed by the respondent was held to be inadmissible in view of the supplier’s blacklisting.

3.The respondent contested the allegations and, inter alia, argued that according to online verification from the Federal

Board of Revenue website, the supplier, M/s I.G. International, was shown as active at the time of the supplies. The respondent further submitted that the return was filed electronically, and the system allowed the input adjustment without raising any objection regarding the transactions in question. Hence, under the circumstances, the input adjustment claimed by the respondent could not be disallowed on the basis of an event that occurred years after the conclusion of the transactions with the supplier. It was also contended that the transactions were made through the banking channel, as required under Section 73 of the Act.

4.The Assessing Officer, being dissatisfied with the explanation, rejected the refund claim of the respondent vide order dated 09.12.2021. The said order was subsequently affirmed by the learned Commissioner Inland Revenue (Appeals), Peshawar, vide order-in-appeal No. 164/2022 dated 13.10.2022. However, on second appeal filed by the respondent, the worthy Tribunal was pleased to allow the appeal. The relevant paragraph of the judgment of the Tribunal reads as follows.: “7. It is further observed that the Appellant has attached herewith online verification from FBR website which shows clear picture at the time to supplies of supplier namely M/s M/s I.G. International (STRN No. 0501854500173) was active. The respondent unit also submitted the return electronically; the system allowed the input tax adjustment without any objection against the subject, hence, under the circumstances, the input adjustment claimed by the respondent is not susceptible for any cause which is occurred year after conclusion of transaction between the respondent and its aforesaid supplier. Here it is question in compliance of Section 73 ibid through banking instruments i.e. cross cheques as evident from the annexed details. In view of the aforesaid situation where the respondent complied with the entire statutory and legal requirement.

8.From the above, it is crystal clear in the financial year 2011-2012 at the time of filing of Respondent Return supplier was active (neither suspended nor blacklisted) thus, their Returns were accepted, thus, whereafter, in view of compliance of section 73 read with Section 21 (3) ibid the said transaction had become closed and past transaction, therefore, cannot be given retrospective effect by any option of law as under the circumstances, for all legal

purposes, it is not the date of passing of Blacklisting order but its date of enforcement on the FBR Portal is to be taken, thus for SHELVED PERIOD the Appellant cannot be held liable. In our view, the appellant has met all the provision of Section 6, 7, 8 and 73 of the Sales Tax Act, 1990, and cause no revenue loss on the part of the Appellant, therefore, the provision of clauses 8 (1) (d), 8A, read with Rule 37 has invoked without any cause as under clause (ca) of Section 8 (1) ibid, the input adjustment can be denied only, if the respective suppliers have not deposited the amount claimed in the government treasury, the ta received against the suppliers in the instant case to the appellant and 8 (1) (d) prohibits the input adjustment on the basis of fake invoices. None of the two causes alleged in the Show Cause Notice”.

5.The petitioner/department has filed the instant Reference wherein the following questions of law have been framed for adjudication of this Court:-

1.Whether being active and not blacklisted at the time of transaction constitutes a legal defense against denial of input tax claimed in violation of Section 8 and 73 of the Act where subsequent investigation reveals that the supplier never existed or did not deposit tax?

2.Whether the doctrine of “fraud vitiates everything” applies to sales tax transactions so that fraudulent invoices, once detected, nullify the claim of input tax irrespective of timing of blacklisting?

3.Whether the L/Tribunal has erred in law by relying merely on the “active status” as conclusive proof of bona fides and compliance, ignoring that such status is administrative indicator under the Sales Tax Act, 1990, and does not preclude proceedings for tax fraud or evasion under section 11 and 21 of the Act?

4.Whether in the facts and circumstances of the case, the L/Tribunal was justified to unilaterally, without confronting the department, allow the appeal on the purported compliance of Section 73 of the Act?

5.Whether compliance with Section 73 of the Act is satisfied merely by producing banking documents that are later proven to be fabricated, circular, or maneuvered, lacking genuine economic substance?

6.Whether the L/Tribunal erred in law by allowing input tax credit on the ground that the supplier was blacklisted after the impugned transactions, without appreciating the express language of Section 21 (3) of the Act, which unequivocally provides that once a person is blacklisted, the input tax or refund claimed against invoices issued by such person ‘whether prior or after such blacklisting’ shall be rejected, thereby rendering the timing of blacklisting irrelevant and making the word ‘prior’

of substantive legal significance in denying credit even for earlier transactions?

7.Whether, under the facts and circumstances of the case, the findings of the learned Tribunal are contrary to the settled law enunciated by the Hon’ble Supreme Court of Pakistan in Hashmi Hotels Ltd vs. Government of Pakistan & Others (PTCL 2008 CL 45), holding that grants or concessions in the nature of exemptions or input tax adjustments must be strictly construed against the taxpayer and in favour of the taxing authority?

6.The learned counsel representing the petitioner/department has primarily emphasized the language of Section 21(3) of the Act and argued that the provision, in clear terms, stipulates that once a supplier is blacklisted, its invoices, whether issued before or after the period of blacklisting, shall not be admissible for the purpose of input adjustment. He has further contended that the Department’s opinion regarding compliance with Section 73 is duly supported by evidence.

7.A perusal of the show cause notice as well as the order-in- original clearly demonstrates that the respondent’s claim for refund was rejected solely on the ground that the supplier, M/s I.G. International, had been blacklisted with effect from 18.07.2013. Consequently, any invoice issued prior to 18.07.2013 by the said blacklisted company was held inadmissible. It is significant to note that the show cause notice does not contain any allegation that the respondent, while making payment to the supplier, failed to comply with the mandatory provisions of Section 73 of the Act, which require transactions to be made through prescribed banking channels.

8.On the contrary, the worthy Tribunal, in paragraph 7 of its judgment, placed reliance upon verification from the FBR website, which confirmed that at the time of supply, the supplier, M/s I.G. International, was shown as active. The Tribunal further observed that the respondent had submitted its return electronically, and the system itself allowed the input adjustment

without raising any objection regarding the transactions in question. This clearly indicates that the respondent had acted in good faith and in compliance with the law as it stood at the relevant time. Thus, when the blacklisting order was subsequently passed, the matter of input adjustment by the respondent had already attained finality and was a past and closed transaction, incapable of being reopened merely on account of the supplier’s later blacklisting. Moreover, the language of Section 21(3) of the Act does not stipulate the retrospective invalidation of tax invoices that were duly reflected in the FBR record, particularly in cases where the input adjustment claim had already been processed and accepted by the system without objection. This statutory provision is intended to prevent the misuse of invoices from blacklisted suppliers prospectively, but it cannot be stretched to nullify transactions that were validly entered into and recognized by the system at the relevant time. Importantly, this factual aspect of the case has not been disputed in the memo of Reference, nor has any supporting document been produced to challenge the Tribunal’s findings.

9.Once the input adjustment has been accepted by the FBR system, it crystallizes into a vested right of the taxpayer. Such a right, having been lawfully acquired, cannot thereafter be denied or withdrawn except in accordance with the provisions of law. To hold otherwise would not only undermine the sanctity of concluded transactions but also erode the confidence of taxpayers in the fairness and consistency of the tax system. The Apex Court has also elaborately addressed this precise issue in the case of Commissioner Inland Revenue, Lahore v. M/s Eagle Cables (Pvt.) Ltd., Lahore (CPLA No. 2400-L/2022, decided on 16.01.2025) in the following manner:- “5. An examination of the records lends credence to the position taken by the respondent. The petitioner has failed to provide any concrete evidence indicating that invoices were issued to the respondent during any

period of suspension or blacklisting. It is therefore admitted on all hands that at the time the purchases were made, the suppliers involved were neither blacklisted nor inactive. Furthermore, the payments for these purchases were processed through a legitimate banking channel, adhering to the procedures delineated in section 73 of the Act. It is now well established in legal precedents that if a transaction is conducted while the suppliers are active and duly registered, any invoices issued are not automatically invalidated by a subsequent blacklisting or suspension of those suppliers. Therefore, it follows that the denial of refunds cannot be justified solely based on the later blacklisting of a supplier. In light of this context, according to sub-section (3) of Section 21, all purchasers, including the respondent, who procured goods before the suppliers’ registration was suspended or they were blacklisted, and who complied with the conditions outlined in section 73 of the Act, were entitled to claim an adjustment of input tax”.

10.The opinion rendered by the worthy Tribunal is found to be in complete consonance with the ratio decidendi laid down in the aforesaid judgment of the Apex Court. The worthy Tribunal has correctly appreciated both the factual matrix and the legal position governing the matter, and its findings are firmly anchored in the principles enunciated by the superior judiciary. In view of such alignment with the binding precedent of the Apex Court, the conclusion reached by the worthy Tribunal does not warrant any interference by this Court.

11.Accordingly, the Sales Tax Reference is answered in the Negative. A copy of this judgment be sent to the worthy Tribunal in terms of section 47(5) of the Act.

Judge

Judge

Date of hearing & announcement Of judgment...........27.01.2026

Date of preparation & signing Of judgment............27.01.2026 Nawab Shah CS (DB) Justice Syed Arshad Ali & Justice Muhammad Faheem Wali