NAZIR AHMAD, (JUDICIAL MEMBER).---The above titled sales tax appeal filed at the instance of the registered person has been directed against the Order-in-Appeal No,17 of 2013, dated 30.07.2013 recorded by CIR(A), Peshawar.
2. The facts in brief leading to the instant appeal are that on scrutiny of income tax return as well as sales tax record, is was observed by the Deputy Commissioner Inland Revenue (Audit-I), RTO, Peshawar that the registered person made taxable supplies of sugar and rice valuing Rs.11,137,010 during the financial year 2008-2009 but failed to pay sales tax amounting to Rs.1,781,922 @ 16%. The said discrepancy was confronted to the registered person by way of issuance of show-cause notice dated 31-12-2012, against which explanation tendered by the registered person was treated unsatisfactory resultantly the adjudicating proceedings culminated in passing of assessment order No,10/2013 dated 23-04-2013 wherein sales tax liability of Rs.1,781,922 along with default surcharge and penalty was ordered to be recovered from the registered person. Feeling aggrieved, the registered person preferred appeal before CIR(A), Peshawar, who after detailed discussion in the body of impugned order remanded the case to the DCIR as per findings given below:--
10. "During hearing proceedings, AR of the appellant has produced break-up of their supplies made during the period in question. According to the said statement, the appellant has made taxable supplies of sugar valuing Rs.5,524,032 and exempt supplies of rice amounting to Rs.5,612,978. Thus the appellant is liable to pay sales tax on supplies of sugar at the applicable rate fixed by F.B.R. The appellant is directed to provide complete detail of supplies of sugar made by them during the financial year 2008-2009 to the respondent department who shall re-calculate the sales tax liability accordingly. In case of failure on part of the appellant to produce the requisite record, the respondent department is directed to calculate sales tax on taxable supplies of sugar at ad valorem basis.
11. In view of the foregoing legal and factual position, the impugned order is hereby modified and the demand on account of sale of sugar along with Default Surcharge and Penalty is hereby sustained."
3. Feeling aggrieved and dissatisfied with partial relief allowed by the first appellate authority the taxpayer/appellant has impugned the order of CIR(Appeal) on the strength of following grounds of appeal:--
(i) That the appellant being a un-registered person, the order passed under section 25(3) by the respondent department is illegal and void abinitio.
(ii) That show cause notice No,152 dated 03-12-2012 was issued under section 11(2) read with section 11(5) whereas the order has been passed under section 25, which renders the order illegal and void.
(iii) That the liability created by the respondent department vide impugned Assessment Order is based on the conjecture that appellant was "liable to be registered" in terms of section 2(25) of the Sales Tax Act, 1990.
(iv) That the respondent department before creating liability under the above referred scenario should have realized that the appellant is dealing in sugar and rice which is not liable to sales tax.
(v) That supply of rice is exempt from sales tax under serial 19 table 1 of the 6th Schedule of Sales Tax Act, 1990.
(vi) That value of supply of white crystalline sugar was fixed by the board under section 2(46) of the Sales Tax Act, 1990 vide S.R.O. No,564(1)/2006 dated 5th June, 2006 at Rs.24.57 per kg. Which was enhanced vide S.R.O. No,4(I)/2009 dated 2nd January, 2009 to Rs.28.88 per Kg.
(vii) That Sugar mills being the sole manufacturers of sugar when supplied sugar to wholesalers charges sales tax I@ 16% on a constant value of supply of Rs.24.57 and Rs.28.88 in the respective tax periods. Sugar when subsequently supplied by the wholesalers to retailers or consumers did not Involve any implication as the value of supply was constant.
(viii) That the respondent department failed to rebut the reply of the appellant with any cogent material and argument.
(ix) That the CIR(A) has erred by saying that the appellant was required to claim input tax adjustment and charge output tax, as infact the value of supply of sugar was constant and no output tax was to be paid.
(x) That the CIR(A) has grossly erred by directing for calculation of sales tax on ad valorem basis.
(xi) That the direction of CIR(A) is contradictory as in one breath he has directed for recalculation of sales tax liability while in the other has sustained the demand on account of sale of sugar along with default surcharge and penalty.
4. Initiating arguments, the learned counsel has termed the initiation of proceedings as time barred by arguing that the adjudicating authority has not leveled any allegation of tax fraud etc., which are covered under section 36(1) of the Act, for which period of limitation of 5 years is prescribed under the law. Non-filing of return or non-payment of sales tax is covered under section 36(2) for which 3 years time limitation is provided. However, on, merits of the case, he has reiterated the arguments advanced before the first appellate authority and grounds of appeal quoted supra.
5. On the other hand learned DR appearing on behalf of the department has fully supported the orders passed by both authorities below.
6. Argument heard and relevant record as well as law carefully perused. So far as the issue regarding time limitation is initiation is concerned our observation is that according to the provisions of Section 36(1), sales tax liability for July, 2008 to June-2009 demanded after expiry of three years is prima facie time-barred as without establishing mens rea of tax fraud, the case at instance, squarely: falls under section 36(2) of the Act, whereas impugned show-cause notice dated 31-12-2012 has deliberately been issued under section 11(3) ibid in order to drag it towards limitation of five, years. TIN is not a case of 'tax fraudas neither provisions of tax fraud are expressly invoked nor contents of impugned show cause notice can impliedly envisage any element of tax fraud. Furthermore, the act of registered person has not been charged with the allegation of fraud therein is suffice to establish a tax fraud against him and without imposition of any penalty of tax fraud. Therefore, a show cause notice, for any amount of tax non-levied or short-levied or amount erroneously refunded due to any inadvertence, error or misconstruction of a registered person, is required to be issued within three years of relevant date under sections 36(1) and 36(2) of the Act which reads as under:- "(I) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice.
(2) Where, by reason of any inadvertence, error or misconstruction any tax or charge has not been levied or made or has been short-levied or has been erroneously refunded the person liable to pay any amount of tax or, charge or the amount of refund erroneously made shall be served with a notice, within three years of the relevant date, requiring him to show cause for payment of the amount specified in the notice"
7. From plain reading of above provisions, is established that the impugned show cause notice issued beyond that very time of limitation in flagrant disregard of law in as much as recovery of sales tax not-levied beyond three years is not only barred by time limitation but is also ex-facie violation of section 36(2) of the Act. Learned counsel of appellant has rightly relied upon judgment of Hon'ble Lahore High Court, Lahore delivered in the case of Messrs Xen Shahpur Division v.
Collector Sales Tax (Appeals) Collectorate of Customs, Federal Excise and Sales Tax, Faisalabad and 2 others reported as [2008 PTD 1973] wherein it has been held as under:- "Notice for recovery of tax not levied or short levied or amount erroneously refunded-Limitation--- Provisions of Section 36(2) of the Sales Tax Act, 1990 provided jurisdiction for issuance of a notice only for three years prior to the date of such issuance; going beyond said mandatory limit shall amount defeating the intention of legislature which could not be allowed."
8. Though instant appeal merits to be accepted merely on bar of limitation yet its factual grounds raised by learned counsel are also appreciable. Appellant is found engaged in the business of sugar and rice during financial year ending on 30th June, 2009. Supply of rice was admittedly exempt from sales tax as also held by learned Commissioner of Appeals however; white crystalline sugar was subject to tax and its value for purpose of the sales tax was fixed at Rs. 24.57 per kilogram by Federal Board of Revenue in exercise of powers conferred under the second Proviso to Section 2(46) of the Sales Tax Act, 1990 through Notification No, S.R.O. 564(1)/2006 dated 5th June, 2006, which remained operative during currency of period from 5th June, 2006 to 1st January, 2009 and was enhanced to Rs. 28.88 per kilogram through an amending Notification No,S.R.O. 4(1)/2000 dated 2nd January, 2009.
Not needless to mention here that the rate of sales tax prevalent during entire period was constantly remained at 16% on such value of white crystalline sugar as off and on fixed by the Board.
9. Sugar mills manufacturing white crystalline sugar made its supply to wholesalers and charged sales tax @ 16% on such value as fixed and notified by the Board for period under reference. The rationale behind fixation of value in case of white crystalline sugar and payment of sales tax thereon such fixed price at the time of making its supply by B Sugar Mills is to provide a complete ouster appallingly on all its subsequent stages of supply mainly including wholesale and retail sale.
Sales tax is no doubt a value added tax but this was not the case, in case notified by the Board for the purpose sales tax irrespective of value at which its supply is actually made or any addition in its price is occurred subsequently in due course of business.
10. Sales Tax once paid on basis of fixed value of locally produced white crystalline sugar by sugar mills provides a complete exoneration to all the persons doing its business as a wholesaler and retailer from payment of any further additional amount on this account and if any effort is made to recover sales tax at any stage of its subsequent supply other than on basis fixed value would defeat the purpose behind fixation of value of locally produced white crystalline sugar and if its demand is created on basis of 'fixed valueagain from its wholesaler and retailers despite payment of sales tax on such value by its manufacturing mills would definitely end up with double taxation not permissible in any civilized tax system. Appellant is a person making retail sale of sugar and no sales tax shall be charged by him because sales tax has already been paid at primary manufacturing stage on the value fixed by the Board and if the department is bent upon to charge to levy sales tax again on same goods, it would amount to double taxation. We have laid our hand with the judgment of Hon'ble Lahore High Court, Lahore in case of Messrs Seven-up Bottling Company (Pvt.) Limited v. Lahore Development Authority (L.D.A) Lahore through Managing Director reported as [2003 CLC 513] as per finding given below:-- "Fiscal statute, provisions of a statue must be read as a whole. No tax or fee to be levied twice on same goods as per golden rule of interpretation of fiscal statute".
11. Yet, in an other judgment of Inland Revenue Appellate Tribunal of Pakistan in case of Messrs Innovative Impex, Karachi v. Collector of Customs, Sales Tax and Federal Excise (Appeals), Karachi reported as [2010 PTD (Trib.) 1010], wherein it has been held as under:-- "No provision existed in the Sales Tax Act, 1990 to levy tax twice i,e, Firstly at the time of purchase and secondly at the time of sales, in addition to the tax already paid," ---In view of the foregoing discussion, the instant appeal preferred by the registered person stands accepted on legal plain as well as merits of the case by way of vacation of the orders passed by both authorities below.
Sd/- (NAZIR AHMAD) Judicial Member Sd/ (MUHAMMAD PERVAIZ ALAM)
ACCOUNTANT MEMBER S.T.A. No,92(PB) of 2013 Messrs Masood and Co. Peshawar, V.
The CIR, RTO, Peshawar The draft order signed by my learned brother the Member Judicial has been legally as well as factually scrutinized and after careful examination of the said draft order my humble observations are mentioned here below.
1. The impugned order passed by the Deputy Commissioner IR is on the basis of available information/record which is in accordance with law as required under section 25 of the Sales Tax Act, 1990. Moreover, since there is no threshold for registration of whole seller under section 14 read with rule 4 of Chapter I of the Sales Tax Rules, 2006 notified vide S.R.O. 555(1)/2006 dated 05-06- 2006. For convenience and to understand the legal position the said section 14 along with rule 4 of the Chapter I of Sales Tax Rules, 2006 notified vide S.R.O. 555(1)/2006 dated 05-06-0206 is reproduced as under:- "Registration.---Under this Act, registration will be required for such persons and be regulated in such manner and subject to rules as the Board may, by notification in the official Gazette, prescribed."
"Rule 4. Requirement of Registration.---The following persons engaged in making of taxable supplies in Pakistan (including zero rated supplies) in the course or furtherance of any taxable activity carried on by them, if not already registered, are required to be registered in the matter specified in this Chapter,
(a) a manufacturer not being a cottage industry;
(b) a retailer whose value of supplies, in any period during the last twelve months exceeds five millions rupees;
(c) an importer;
(d) a wholesaler (including dealer) and distributor
(e) a person required, under any other Federal Law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as it were a levy of sales tax to be collected under the Act and;
(f) a commercial exporter, who intends to obtain sales tax refund against hiszero rated supplies.
2. In view of the aforementioned, the sales of white crystalline sugar of the appellant amounts to Rs.5,524,032 and is liable for registration.
As per above, the appellant and their supplier company being registered persons under the Sales Tax Act, 1990, the supplier is required to issue sales tax invoice under section 23 of the Sales Tax Act, 1990 with the following particulars:--
(a) name, address and registration number of the supplier.
(b) name, address and registration number of the recipient;
(c) date of issue of invoice;
(d) description and quantity of goods,
(e) value exclusive of tax;
(f) amount of sales tax;
(g) value of inclusive of tax;
4. My above point of view is corroborate by the contents of section 23 of the Sales Tax Act, 1990 which for convenience is reproduced as under:-- "A registered person making a taxable supply shall issue at serially numbered tax invoice at the time of supply of goods containing the aforementioned particulars".
5. Thus the department has correctly treated the appellant as registered person in view of paragraph-1 as well as section 2(25) the Sales Tax Act, which for convenience is reproduced as under:-- "S.2(25) "registered person" means a person who is registered or is liable to be registered under this Act.
Provided that a person liable to be registered but not registered under this Act. Shall not be entitled to any benefit available to the registered person under any of the provisions of this Act or the rules made thereunder."
6. It is mandatory to prove as to whether the sales tax so charged at purchase stage/level was deposited/paid by the supplier company of the appellant or otherwise. But contrary to the said provision, the registered person has no invoices at all, to support the claim that tax was deposited by the supplier.
' Moreover, it cannot be said to be a case of double taxation as payment of tax on purchases if any, is adjustable against output tax on supplies in terms of sections 7 and 8 of the Sales Tax Act, 1990.
Therefore the appellant is under legal obligation to prove the genuineness of tax on purchases on the basis of substantial documents in support of input tax which was paid on purchase stage i,e, sales tax invoice, sales tax returns of the supplier and others.
8. My learned brother, the Judicial Member has mentioned in the draft order that the registered person was dragged from section 36(2) to section 36(1) of the Sales Tax Act, 1990. I agree with my learned brother and in my view there was some misconstruction on the part of the registered person as he was under the impression that tax has already been deposited by the Sugar Mill and he was not required to deposit the said tax as the value of white crystalline sugar sales remains constant in view of the rates prescribed by the Federal Board of Revenue at Rs.24.57 and Rs.28.88 per kilogram vide S.R.O. 564(1)12006 dated 05.06.2006 and S.R.O. 4(1)12009 dated 01.01.2009.
Furthermore, in the income tax return, the said sale of sugar was declared, if the act of the registered person as per department was deliberate, then he would not have declared the said sales of sugar in the income tax return. Hence I agree with the view of the learned Judicial Member that the period of limitation for such type of eventuality is three years and not five years. My this point of view is corroborated by the contents of section 36(1) of the Act, which are reproduced as under:-- "36(1) Where by reason of some collusion or a deliberate act any tax or charge has not been levied or made or has been short levied or has been erroneously refunded, the person liable to pay any amount of tax or charge or the amount of refund erroneously made shall be served with a notice, within five years of the relevant date, requiring him to show cause for payment of the amount specified in the notice.
9. After careful examination of the above provisions, it is very much clear that the department has not established any collusion or deliberate act or mens red on the part of the registered person, hence for limitation purpose the contents of section 36(1) of the Sales Tax Act, 1990 is not applicable in the present case, however, the contents of section 36(2) of the Act are applicable as there was some misconstruction in the mind of the appellant as discussed above, hence for limitation section 36(2) is applicable which has been elaborately discussed by the learned Judicial Member.
Sd/- (Muhammad Pervez Alam)
Accountant Member.
S Ullah/PS.
I have gone through the order of my learned Brother Accountant Member. Although, he has agreed with me on the legal issue of limitation but on merits he has differed with any findings. Since, difference of opinion has arisen, therefore, the matter is referred to the Honourable Chairperson for the appointment of third Member to resolve the following questions:-- 1) As to whether the appellant being not registered under the Sales Tax Act, 1990, was under legal obligation to issue sales tax invoices under section 23 of the Sales Tax Act, 1990?
2) As to whether a person liable to be registered can issue invoice prescribed under the law and withhold tax thereon?
3) As to whether the department was legally bound to compulsory register the appellant before creating a tax demand or requiring him to pay sales tax not withheld under Rule 6 of the Sales Tax Rules, 2006?
Sd/- (NAZIR AHMAD) Judicial Member Sd/- (MUHAMMAD PERVAIZ ALAM)
(Accountant Member)
Babar Nazir for Appellant.
None for Respondent.
Date of hearing: 23rd July, 2015.
Date of order; 27th July, 2015.
'AS PER MR. MUHAMMAD WASEEM CHAUDHARY, JUDICIAL MEMBER IN THE CASE OF M/S. MASOOD AND CO. PESHAWAR.
22. The matter has been entrusted to me by the Honourable Chairman for resolving the difference of opinion between my learned brothers which has arisen while deciding the above titled appeal.
The questions referred to are, as under:- i) As to whether the appellant being not registered under the Sales Tax Act, 1990, was under legal obligation to issue sales tax invoices under section 23 of the Sales Act, 1990? ii) As to whether a person liable to be registered can issue invoices prescribed under the law and withhold tax thereon? iii) As to whether the department was legally bound to Compulsory register the appellant before creating a tax demand or requiring him to pay sales tax not withheld under Rule 6 of the Sales Tax Rules, 2006?
23. The learned AR of the appellant has been heard, none appeared on behalf of the respondent.
The both learned brothers have reached the conclusion that section 36(2) was applicable in the circumstances of case and not 36(1) or 11(3). The proceedings were held to be time barred and I agree to this finding. Answer to the questions raised whether in affirmative or in negative, would not change this conclusive finding of the action being time barred.
24. To understand the questions, it is essential, that the relevant provisions are reproduced which read as under:-- Section 2: "(25) "registered person" means a person who is registered or is liable to be registered under this Act: provided that a person liable to be registered but not registered under this Act shall not be entitled to any benefit available to a registered person under any of the provisions of this Act or the rules made thereunder; Section 23, Tax invoices.
(1) A registered person making a taxable supply shall issue a serially numbered tax invoice at the time of supply of goods containing the following particulars. Namely
(a) name, address and registration number of the supplier;
(b) name, address and registration number of the recipient;
(c) date of issue of invoice;
(d) description and quantity of goods;.
(e) value exclusive of tax;
(f) amount of sales tax; and
(g) value inclusive of tax Provided that the Board may, by notification in the official Gazette, specially such modified invoices for different persons or classes of persons;
(2) No person other than a registered person or a person paying retail tax shall issue on invoice under this section.
(3) A registered person making a taxable supply may subject to such conditions, restrictions and limitations as the Board may, by notification in the official Gazette, specify, issue invoices to another registered person electronically and to the Board as well as to the Commissioner, as may be specified.
(4) The Board may, by notification the Official Gazette, prescribe the manner and procedure for regulating the issuance of authentication of tax invoices.
Rule 6 of the Sales Tax Rules, 2006
6. Compulsory registration.---(1) if a person, who is required to be registered under this Act, does not apply for registration and the LRO or any other office as may be authorized by the Board or the Collector, after such inquiry as deemed appropriate, is satisfied that such person is required to be registered, it shall issue notice of such person in the Form set out in the For STR-6, (2) in case the LRO receives a written reply from the said person within the time specified in notice contesting his liability to be registered, the LRO shall grant such person opportunity of personal hearing, if so desired by the person and shall thereafter pass an order whether or not such person is liable to be registered compulsorily. Copy of the said order shall invariably be provided to that person.
(3) Where the person to whom a notice is given under sub-rule (2), does not respond within the time specified in the notice, the LRO shall transmit the particulars of the person to REGSYS, which shall compulsorily register the said person and allot him a National Tax Number which shall be delivered to the said person either in person through LRO or through registered mail (acknowledgement due to through courier service)?
(4) A person registered compulsorily as aforesaid, is required to comply with all the provisions of the Act and rules made thereunder from the date of compulsory registration, and in case of failure to do so, the Commissioner Inland Revenue having jurisdiction may issue notice under section 25 of the Act for production of records or documents and appearance in person to assess the amount of sales tax payable under section 11 of the Act, and take any other action as required under the law against such person:
25. Provided that if it is subsequently established that a person was not liable to be registered but was wrongly registered under this rule due to inadvertence, error or misconstruction, the Commissioner shall send recommendation to REGSYS to cancel his registration. In case of such cancellation of registration, such person shall not be liable to pay any tax, default surcharge or penalty under the Act or rules made thereunder, subject to the conditions, limitations and restrictions prescribed under section 3B of the Act.
[Underlining provided] ' The above reproduction of the relevant provisions of the Act and the rules, do not leave much to be discussed. A sales tax invoice can only be issued under Section 23 by specified persons only.
Subsection (2) in unequivocal terms forbids that "No person other than a registered person or a person paying retail tax shall issue on invoice under the section". Hence, answer to the question (1) is that a person not registered under the Sales Tax Act, 1990 cannot issue a sales tax invoice under section 23 of the said Act. If a person is not registered but is required or liable to be registered, Rule 6(1) of the Sales Tax Rules, 2006 reproduced above comes into operation and the concerned authority can issue and compulsorily register such person under the Sales Tax Act after following the procedure prescribed thereunder.
26. Sales tax invoice to be issued under section 23 is envisaged to be issued only by a registered person having Sales Tax Registration Number which is evident from the fact that section 23 requires registration numbers of the supplier as well as recipients on the Sales Tax Invoice to be issue by him. Otherwise it would not be an invoice in accordance with section 23. Therefore, I am of the view that a person who is liable to be registered but not actually registered cannot issue sales tax invoice and withhold tax thereon:
27. As regards question (3), the combined reading of sections 2(25) and 23 of the Sales Tax Act, 1990 and Rule 6 of the Sales Rules, 2006, where a person is required to be registered under the Sales Tax Act, 1990 as envisaged under section 14 of the Act is under obligation to apply for registration and in case of failure, the departmental authorities shall issue a notice to such person and after allowing him an opportunity of being heard shall passed an Order whether or not such person is liable to be registered compulsorily or not. Hence, answer to question 3 is in affirmative that where a person is liable to be registered the departmental authorities are required to be registered compulsorily and then charge sales tax from him under section 3(1)(a) of the Sales Tax Act, 1990 which stipulates that "there shall be charged, levied and paid a tax known as sales tax at the rate of seventeen per cent of the value of taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him.
Sd/- (MUHAMMAD WASEEM CH.)
Judicial Member