Exporter succeeds in obtaining input tax against alleged fake/flying invoices

LAHORE: A silk manufacturer cum exporter has succeeded in obtaining input tax against the alleged fake/flying invoices of sales tax by proving that a reverse onus placed on him was without conducting an audit or making a proper inquiry after issuing a show cause notice, said sources.

The said manufacturer is registered under the Sales Tax Act 1990 and is engaged in the business of manufacturing and export. One Deputy Commissioner Inland Revenue had served a show cause notice upon him in pursuance to a report of the Directorate General, Intelligence and Investigation (I&I), alleging that the taxpayer had claimed input tax against the supplies from eight suppliers involved in the issuance of fake/flying invoices without depositing tax in the treasury.

It was, therefore, assumed that the invoices were fake, therefore, recovery proceedings against the input tax claimed against them was carried out along with default surcharge and additional tax.

According to sources, no meaningful effort was made by the sales tax officials to conduct an audit nor was a proper inquiry made before the issuance of the show cause notice. It was based on vague allegations and an assumption that since some of the supplies were made by the eight entities involved in the issuance of fake/flying invoices, therefore, the invoices relating to such supplies must also have been of the same status.

Sources further pointed out that the taxpayer was asked by the sales tax authorities to provide documents which, at the relevant time, were not required to be maintained by a registered person under the Act, including gate passes, goods inward inventory record and transportation challans.

The appellate tax authorities had maintained that though the record sought from the taxpayer was not required to be maintained by the taxpayer at the relevant time, yet it was his obligation to prove that supplies were actually made to it.

Tax experts said the onus was on the department to first establish that the eight suppliers had not made actual supplies and, thus, the invoices against which the input was claimed were fake/flying invoices.

Moreover, it was the department’s responsibility to verify whether or not the eight entities had deposited the sales tax in the government treasury related to the invoices against which the taxpayer had claimed input tax.

They said the concept of reverse onus i.e. placing the burden on the person against whom an allegation has been made runs contrary to the established principle of presumption of innocence, a rejection of fair trial.

Copyright Business Recorder, 2023