A.   BACKGROUND (BG)

1.   This refers to the related Important TLQCs in trail blue, italic and double Line (a) 3069 of 28.3.25 about Input tax is OK before Blacklisting, if Purchases with Section 73 Compliance – SCP

(b) 2905 of 21.11.24 about RA against blacklisting Suspension & fake invoices issues (c) 1649 of 21.9.21 about Department could not prove buyers’ blacklisting status at transaction time - ATIR 

2.   We also refer to several Other TLQC including (a) 3030 of 3.2.25 about FBR accepted Black Economy, 7.5% unregistered Manufacturer & Claimed no speed money (b) 2905 of 2905 of 20.9.24 about Fake Refunds to Tea Mafia: FBR Officer suspended & being investigated (c) 2249 of 3.3.23 about IHC dismissed Petition against ST Registration Suspension

B.   EXECUTIVE SUMMARY

The SCP, comprising Justice Munib Akhtar and Justice Aqeel Ahmed Abbasi, recently delivered its ruling in the case titled CIR VS --------------------. The apex court dismissed the FBR’s appeal against the Lahore High Court’s earlier judgment, stating that no substantial question of law had arisen from the case.

2.   SCP found that the show cause notice issued to the Respondents was vague and lacked material evidence. The FBR had alleged that Mustafa Enterprises claimed inadmissible input tax of Rs 55 million based on fake or “flying” invoices. However, the SCP observed that no proof was presented to establish that the suppliers were black listed during the relevant tax period.

3.   The case originated from an audit of tax returns for the period July 2019 to June 2020. The Assistant Commissioner had imposed a recovery demand, claiming the company had committed tax fraud. However, both the ATIR and the LHC had overturned the decision, citing absence of verified evidence and due process.

4.   Reinforcing the High Court’s stance, the SCP held that the entire case rested on presumptions rather than verified facts. The SCP emphasized that neither invoices nor payment records proving fake transactions were ever confronted or authenticated. As a result, the apex court found no merit in the civil petition for leave to appeal filed by the FBR.

5.   This verdict marks a significant development in Pakistan’s tax jurisprudence. It also serves as a reminder to the tax authorities that all actions must be grounded in solid evidence and compliance with due legal process. The SCP decision underscores the judiciary’s role in maintaining checks and balances over administrative overreach.

C.   DETAILS

1.    Background

1.1   Further to KQU 3438 of ------------, being an important matter, we would inform you about ------------------------------ (Attachment 3223.1) in the ensuing paragraph, with emphasis in bold & Underline for quick reading.

1.2   Through instant civil petition for leave to appeal the petitioner department has assailed the order dated 26.03.2025 passed by the Lahore High Court, Rawalpindi bench, Rawalpindi in STR no. -----024 in the case of Commissioner inland revenue v --------------. whereby, reference application filed under section 47 of the Sales tax 1990 ( the "Act") by the petitioner against the order dated 4.1.24 passed by the Appellate Tribunal Inland Revenue (Headquarter Bench Islamabad) in------------------------------ has been dismissed.

2.   Learned Counsels for Petitioner Submissions

2.1   It has been contended by learned counsel for the Petitioner that the learned Division Bench of LHC was not justified to dismiss the appeal filed by the petitioner against the order passed by the ATIR in instant case, as according to learned counsel the Respondents couldn't discharge the onus to proof that the input adjustment claimed during the tax period under dispute was not based on fake/flying invoices issued by the suppliers who were blacklisted whereas, according to learned counsel the Respondents also failed to furnish relevant record including the invoices and proof of purchases made by the Respondents during the relevant tax period, thus failed to comply with the requirements of Section 73 of the Act.

2.2    Since the ATIR did not record any finding with regard to non-compliance of the above provisions of the act therefore, the learned Division Bench of the Lahore High Court was not justified to concur with the decision of the ATIR in instant case. It has been prayed by the learned counsel that the impugned order passed by the ATIR and the Division Bench of Lahore High Court may be set aside and the questions proposed may be answered in favour of the petitioner and against the Respondents.

3.   Learned Counsels for Respondent Submissions

It was concluded that Respondents did not purchase any coal from the local suppliers and unlawfully claimed input tax on the basis of fake/ flying invoices issued by the dubious suppliers, therefore, caused loss to the national exchequer to the tune of Rs. 55,032,846/- by violating the provisions 6,7,8,22,23,26 and 73 read with Section 2(37) of the Act. In addition to hereinabove, Respondents were also confronted as to why the default surcharge under Section 34, the penalty under Section 33 of the Act should not be recovered from the Respondents. As per record, the aforesaid show cause notice was duly responded by the Respondents however, the reply furnished by the Respondents was not found satisfactory, and the Order-in-Original No. 33/100 of 2023 dated 31.10.22 was passed by the Assistant Commissioner Inland Revenue Unit-IV Cantt Zone RTO, Rawalpindi whereby, the Respondents were held liable to deposit an amount of Rs. 55,032,846 being inadmissible input tax, adjusted on the basis of fake/flying invoices, along with default surcharge and penalties in term of Section 34 and 33 of the Act.

4.   SCP Deliberations

4.1 to  4.6

D.   SCP Decision 

The ATIR and the learned Division Bench of Lahore High Court, were justified to set aside both the Order-in-Original and the Order-in-Appeal, while recording concurrent findings on facts which do not suffer from any illegality or error. We are of the considered opinion that the impugned order does not give rise to any substantial question of law, and the order passed by the learned Division Bench of Lahore High Court, Rawalpindi Bench, Rawalpindi does not suffer from any factual error or legal infirmity, hence does not require any interference by this Court. Accordingly, leave is refused and this petition is dismissed.

E.   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 Advisory, Statement or Return Filing or Review services, or related accounting matters like the above, please feel free to email Mr Amsal at amsal@kasbati.co with CC to info.kasbati@professional-excellence.com. Your Good self may continue to get other services from your current Tax & Legal Advisors.