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Tax Dosti Presents

Tax Dosti
13-3-2023

Tribunal is the Final Forum for Fact Finding

History of the Case
Sales Tax Case for the Year 1995-96
1.Audit Proceedings
2.Collector of CE & ST
3.CEST Tribunal
4.Lahore High Court
5.Supreme Court of Pakistan
1995-96 to 2022-23 = 28 years

Audit Proceedings
ST Department
•During audit proceedings,
•It was revealed that M/s Qadbros Engineering (Pvt) Ltd (respondent) had claimed
input adjustment of sales tax paid earlier on purchases from their sister unit M/s
Qadri Brothers (Pvt.) Ltd.
•The Show Cause Notice issued to the respondent alleged that it had wrongfully
claimed input adjustment of sales tax on the purchase of M/s channels from its
sister unit, Qadri Brothers (Pvt) Ltd.
•The invoices No. 1 to 150 were issued by M/s Qadri Brothers (Pvt) Ltd., which
was paying fixed sales tax on fixed production basis under the SRO.630(I)/1995
dated 02.07.1995.

Tribunal
Two Members giving two different views on the allegation
•The Show Cause Notice was issued to the respondent with the allegation that it had
wrongfully claimed input adjustment of sales tax on the purchase of channels from its
sister unit, Qadri Brothers (Pvt) Ltd.
•One learned member held that there is no prohibition under the law for issuing sale
invoices and the respondent was found entitled to claim and adjust input tax on the basis
of the disputed invoices.
•However, another learned member recorded his dissenting view and held that when the
supplier (Qadri Brothers) could not charge output tax on a tax invoice and was paying
sales tax on presumptive production, the appellant/respondent could not get that right of
input tax adjustment which was not available to the supplier. Therefore, it seems that
there were differing opinions among members regarding whether M/s Qadbros
Engineering (Pvt) Ltd could claim input tax adjustment in this case.

The appellate tribunal partly allowed the appeal and
waived the penalty but did not make any definite findings
on the relationship between the respondent and Qadri
Brothers.

A company is considered a subsidiary of a holding company
If the holding company has a majority of its voting rights or
the right to appoint or
remove a majority of its board of directors.
A wholly-owned subsidiary is one whose shares are
exclusively owned by the holding company,
its wholly-owned subsidiaries,
and their nominees.
It is important to note that while a holding company and its subsidiary are
separate legal entities, the affairs of the subsidiary can be treated as the
affairs of the holding company for certain purposes under the law.

The petitioner's department was unable to prove
that M/s Qadbros Engineering (Pvt) Ltd is a sister concern or subsidiary of M/s Qadri
Brothers (Pvt.) Ltd. The lack of tangible evidence, including records from the
Securities and Exchange Commission of Pakistan (SECP), makes it difficult to
establish the relationship between the two companies.

Fishing Expedition

Main Issue of the Case

The issue at hand in a specific case in which an entity called M/s Qadri
Brothers was accused of providing undue benefits to its sister company
by arranging its invoices in a way that allowed for input tax adjustments.
Despite paying a fixed sales tax, M/s Qadri Brothers was not prohibited
by law from issuing invoices to buyers.
However, to make input tax deductions, they needed to have proper
invoices or bills.
If the invoices were issued erroneously or in violation of the law, legal
action should have been taken by the department for recovery.