Through this single order, we are intended to dispose of the captioned three (3) Appeals for having involved common questions of law and similar facts:--
1. STA No, 381/IB/2015 filed by Messrs Sarwish Traders against Order-in-Appeal No, 424/2015 dated 29.05.2015 passed by the CIR(A), Peshawar in Appeal against Assessment Order No, 03/2015 dated 02.03.2015. (Tax Period Aug-2013 and Nov-2013)
2. STA No, 382/IB/2015 filed by Messrs A&S Traders against Order-in-Appeal No, 425/2015 dated 29.05.2015 passed by the CIR(A), Peshawar in Appeal against Assessment Order No, 01/2015 dated 02.03.2015 (Tax Periods Aug-2013, Jan-2014, Feb-2014, April-2014 and June, 2014)
3. STA No, 383/IB/2015 filed by Messrs Saim Traders against Order-in-Appeal No, 426/2015 dated 29.05.2015 passed by the CIR(A), Peshawar in Appeal against Assessment Order No, 02/2015 dated 02.03.2015. (Tax Periods Aug-2013, Oct-2013, Nov-2013, Jan-2014, Feb-2014, Mar-2014 and Apr-2014)
2. Brief facts leading to these Appeals are that on the Contravention Reports of the Director General of Intelligence and Investigation, Peshawar, the Respondent-1 issued a Show Cause Notices to the Appellants for making supplies to M/s. Norwegian Refugee Council (NRC) during the tax periods by Messrs Sarwish Traders in Aug-2013 and Nov-2013, M/s. A&S Traders in Aug-2013, Jan-2014, Feb- 2014, April-2014 and June, 2014 and by M/s. Saim Traders in Aug-2013, Oct-2013, Nov-2013, Jan-2014, Feb-2014, Mar-2014 and Apr-2014 over which NRC withheld 1/5th of the sales tax whereas the Appellants were charged for failing to pay 4/5th of the sales tax which are recoverable under section 11(2) along with default surcharge under section 34 of the Sales Tax Act, 1990. Show Cause Notice also invoked the punitive provisions of 33(1), (2), (5), (6), (11), (B), (C), (13), (19), (21) and 37A of the Sales Tax Act, 1990 against the Appellants for alleged violation of Sections 3, 6, 7 and 26 ibid.
3. Appellants submitted replies to the Show Cause Notices wherein all the allegations have been denied. The Assessing Officer having not been impressed of the replies of the Appellants upheld the cause of the Show Cause Notices by holding that Appellants have contravened the provisions of sections 3, 6, 7 and 26 of the Sales Tax Act, 1990, and committed tax fraud as defined under section 2(37) of the Act ibid, and the offences are punishable under sections 33(1), (2), (5), (6), (11), (b), (c), (0), (19), (21) and 37A of the Sales Tax Act, 1990. The Respondents have willfully evaded Sales Tax which is recoverable under Section 11(3) of the Sales Tax Act, 1990 along with default surcharge as chargeable under section 34 of the Act, ibid. Penalty equal to 100% of the principal amount of tax involved as prescribed under Section 33(13) of the Sales Tax Act, 1990 and equal to 3% of the amount of tax involved for each non-issuance of the prescribed Sales Tax invoice under Section 33(2) of the Act, ibid is also imposed. Charges leveled in the show cause notice against the respondent stand fully established".
4. Aggrieved of impugned Assessm ent Orders, the Appellants filed Appeals before the learned Commissioner Inland Revenue (Appeals), Peshawar which were also failed, hence, these Appeals.
5. The learned counsel for the Appellant submitted that impugned orders are erred both in law and facts, hence, not sustainable in the eyes of law. He attributed mala fide and misconception to the impugned orders and stated that Appellants had not charged any sales tax from the NRC as evident from the invoices issued by the Appellants. Messrs Norwegian Refugee Council (NRC) being an official strategic partner of UNHCR operating under the permission of Ministry of Economic Affair Division are exempt from the sales tax or supplies or zero rated to it for being covered by Serial No, 2 of the Fifth Schedule to the Sales Tax Act, 1990. If once the supplies have been found exempt from tax leviable under the statute than any procedural lapse for availing exemption or zero rating are condonable by virtue of principle of substantive compliance as held by the Superior Courts including the Supreme Court of Pakistan. It was contended that under the circumstances where the IDPs were provided supplies on daily basis in such emergent situation the donor agency had hardly any time to wriggle out the procedural requirements at the cost of human miseries and calamities. In alternate, the counsel submitted that most of the supplies comprised of textile items or textile made ups and covered by S.R.O. 1125(1)/2011 dated 31.12.2011, therefore, in view of condition
[vii] and [viii] read with Entry No, 2 of Table-II of S.R.O. 1125(1)/2011 31.12.2011 instead of 17%, the textile component at the most could be charged a 5%. Similarly on Dettol every bottle carries the incidence of tax which part is also liable to be remitted. Therefore, many items which are either zero rated or otherwise exempt such as stationery items, foods and shelters related items etc. Two lower for a have not dealt with the Appellants plea in accordance with law that the contract of supply was divisible between the supply of goods and as well as services. The impugned demand and Orders are hit by Article 247(3) of the Constitution, 1973 as the Sales Tax Act, 1990 has not been extended to the Tribal Areas, therefore, the goods meant for consumption to the permanent residents of the Tribal Areas who were forced to live in the settled areas are exempt as the Internally Displaced Persons (IDPs) caused by Zarb-e-Azab were not liable to be charged by the tax leviable under the Sales Tax Act, 1990. Liabilities have been inflated for mala fide reasons as it is fate accomplion that Appellants have not charged sales tax at all, therefore, the liabilities should have been workout by taking into account tax fractions as defined in subsection (36) of Section 2 of the Sales Tax Act, 1990. It was also contended that real cause, if at all any, of the Show Cause Notice falls within the purview of error, inadvertence and misconstruction, thus, instead 11(3) ibid cause falls within the purview of Section 11(2) of ibid, therefore, the allegations of tax fraud were vehemently impugned by the Appellants. The entire proceedings against the Appellants are void ab initio as without selection for audit in accordance with law, the Respondents could proceed against the Appellant, thus, entire proceeding against the Appellants led to impugned Orders are nullity in the eyes of law.
6. On the other hand the Respondents also defended the order with zeal with thrust on the point that zero rated supplies to privileged persons has been specifically dealt with under Rule 57 of Chapter VIII to the Sales Tax Rules, 2006. It is mandatory for the privileged person to apply the concerned Deputy Collector along with exemption certificate issued by Economics Affairs Division for issuance of a certificate of zero rated supplies. No such certificate was produced from the Economic Affairs Division nor was a consequential certificate issued by the concerned Deputy Commissioner. Accordingly, the contention of the appellant that the supply was zero rated is totally misconceived and an effort to confound the appellate authority. The contention that by allowing M/s. NRC to work in Pakistan the government has granted it the status of a privileged organization is totally false and baseless. In order to get zero rated supplies an elaborate process as mentioned in Chapter VIII of Sales Tax Rules, 2006 has to be followed which is totally absent in the present case This line of argument is farfetched and aimed at confounded the appellate authority and thus liable to rejection.
7. We have heard the parties and record perused. It revealed that Messrs Norwegian Refugee Council (NRC) is .a non-profit international organization and a strategic partner of UNHCR engaged to provide assistance to the IDPs in Pakistan with the permission of Ministry of Economic Affairs Division, Islamabad, hence, enjoy the status of a privileged organization. The supply of goods made to such organizations shall be charged to tax a zero percent as provided for in Section 4 read with S.No, 2 of the Fifth Schedule to Sales Tax Act, 1990. Providing entitlement of zero rated supplies to various person and organizations. Entry No, 2 reads that "Supply to diplomats, diplomatic missions, privileged person and privileged organizations which are covered under various Acts, Orders, Rules, Regulations and Agreements passed by the Parliament or issued or agreed by the government of Pakistan". The situation of zero rated entitlement as laid down in the above clause for each entity is separate and independent. The word "or" mentioned in the clause is disjunctive and denote the independent entitlement. In the case of M/s. Norwegian Refugee Council (NRC) it is a privileged organization and the government of Pakistan by issuance permission to their operation of assistance to IDPs has conveyed the clear agreement by the government. It does not require any further notification nor any further notification was issued in any other parallel organization. It is on record that Appellants have not charged any sales tax from the NRC as evident from the invoices issued by the Appellant because neither the NRC mentioned while inviting of tenders nor it was ever objected by the NRC that why sales tax amount has not been included in the invoices as such element of fraud ipso facto obviated. The taxpayer was thus, fixed in a situation where NRC had recovered part of the sales tax out of their cost under the misconception of law and now .Through impugned orders they are being compelled to pay rest of the amount. This situation has created a confiscatory taxation which has been disapproved by the apex Court in case Government of Pakistan v. Muhammad Ashraf and others reported as PLD 1993 SC 176, subsequently by the Peshawar High Court in case Northern Bottling Co. v. The Federation of Pakistan reported as 2004 PTD 2267 and in many reported cases of this Tribunal.
8. It has been notified that under section 7 of the Convention on the Privileges and Immunities of the United Nations provides, inter alia, that the United Nations including its subsidiary organs are exempt from all direct taxes and customs duties in respect of articles imported or exported for its official use. Accordingly, if flow-through tax exemption privileges are obtained for UN vendors, the Vendor authorizes NRC to deduct from the Vendor's invoices any amount representing such taxes or duties charged by the Vendor to NRC. Payment of such corrected invoiced amounts shall constitute full payment by NRC. In any cause the amount demanded is allowed to be recovered from the Appellants invariably, they will have to knock at the door of NRC which will in turn approach to Economic Affairs Division for exemption. The NRC by virtue of sub-rule (5) of Rule 57 of Sales Tax Rules, 2006 that it may approach Economic Affairs Division. For post facto regularized the supplies in term of chapter of Sales Tax Rules, 2006 ipso facto qualified the appellant supplies were exempt or zero rated. It is trite law that if once the supplies have been found exempt from tax leviable under the statute than any procedure lapse for availing exemption are condonable by virtue of principle of substantive compliance as held by the Superior Courts including the Supreme Court of Pakistan. Reliance is placed on PLD 1989 SC 222 (Messrs Nishat Textile Mills v.
Superintendent of Central Excise etc.) and the Tribunal Judgment reported as 2003 PTD 1881.
Besides, the impugned demand and Orders are also hit by Article 247(3) of the Constitution, 1973 as the Sales Tax Act, 1990 has not been extended to the Tribal Areas, therefore, the goods meant for consumption to the permanent residents of the Tribal Areas who were forced to live in the settled areas are exempt as the Internally Displaced Persons (IDPs) caused by Zarb-e-Azab were not liable to be charged by the tax leviable under the Sales Tax Act, 1990. Here it is worth to mention that NRC operated under the strategic Partnership Agreement dated 29.05.2006 with United Nations High Commissioner for Refugees (UNHCR) Article 3 which reads "This MOU applies to all substantive areas of cooperation between UNHCR and NRC, globally and in situation-specific operations. It is particularly, albeit not exclusively, applicable in relation to UNHCR's role as cluster lead for protection, Emergency Shelters, and Camp Coordination and Camp Management (CCCM) for certain internal displacement situations. The agreement has been framed in recognition of NRC's extensive capacity and experience with working with IDPs and refugees worldwide" and Article 5 reads as "NRC will continue to support and participate in the UNHCR chaired clusters on Protection, Shelter and CCCM. The two agencies will further develop collaboration and joint efforts under all three clusters, in line with the general areas listed above". In such of the circumstances, where the Donors Agency acting on war footing in noble cause, the liability merely caused by a, procedural lapse cannot be overstretched to frustrate the donors agencies landed here to lend hand to the government to reduce the human miseries which could not be handled by the government all alone. Accordingly supplies made to NRC being privileged organization are zero rated within the meaning of relevant provisions of law. In view of the above we hardly need to resolve other points raised. Consequently the order of assessment being illegal and without lawful jurisdiction is liable to be annulled and are declared it so as these appeals are accepted.