' Through this sales tax appeal taxpayer has contested the impugned order recorded in Appeal No,93/2013 dated 30.12.2013 passed by L/C1R(A) whereby he rejected appeal of the taxpayer.
2. Brief facts of the case are that appellant an AOP manufacturer of cosmetics products, is working under the name and style of M/s Forvil Cosmetics, Mingora, Swat. During audit of the sales tax returns for tax period from September 2009 to May 2011 relating to advertisement services provided to the appellant by M/s Hum Net Work Ltd having STRN 1712980511282. The department observed that advertisement services involving sales tax of Rs,5,837,209/- was received by the appellant but they failed to withheld and deposit the sales tax amount into Government treasury. Accordingly show cause notice was issued through which taxpayer was charged with the violation in violation of sections 3(6), 3(7), 23 and 26 of the Sales Tax Act, 1990 read with Rules 2(3A) and 2(8) of Sales Tax Special Procedure (Withholding) Rules, 2007 as amended and was alleged as under:-- (i)According to rule (3A) of the Sales Tax Special Procedure (Withholding) Rules, 2007 issued under S.R.O. 660(1)/2007 dated 30.06.2007 read with S.R.O. 77(1)/2008 dated 23.01.2008 and S.R.O.
603(1)/2009 dated 25.06.2009, a recipient of services advertisement services shall deduct the amount of sales tax as mentioned in the invoice issued by the service provider.
(ii)During the course of audit of sales tax returns along with Annex 'C' thereof, relating to Messrs Hum Net Work Limited it was noticed that advertisement services involving sales tax of Rs,5,837,209/- were received but the appellant and being a withholding agent, the appellant was required to deduct and pay the amount of withholding tax to the Federal Government but neither the proof of payment of revenue nor the certificate under Rule 2(8) of the Rules as aforesaid was available with appellant.
2. Not satisfied with the averments made by the appellant, the Deputy Commissioner passed Assessm ent Order dated 31.10.2013 wherein he upheld the demand along with default surcharge. A penalty of Rs,10,000/- was also imposed. The first appeal was dismissed by the L/CIR(A);hence this second appeal before this forum.
3.That the learned AR appearing on behalf of the appellant has vehemently contested that the impugned orders have been passed without affording a proper opportunity of hearing. Neither the documents nor the information had been provided in support of charges leveled in the show cause notice. It has also been contended that the impugned show-cause notice as well as impugned assessm ent order is beyond the jurisdiction of Deputy Commissioner Inland Revenue, E&C-III, Withholding Zone, RTO Peshawar. The L/AR has pointed out that in exercise of powers conferred under section 30 of the Sales Tax Act, 1990, Federal Board of Revenue has issued order vide C.No,57(2)S-DOS/2011-28927-R dated 28.02.2011 as amended through which it has appointed Commissioner of Inland Revenue, Withholding Zone, RTO, Peshawar to exercise the powers and perform functions for the purposes of monitoring and enforcement of withholding tax conferred under taxing statutes inter alia including Sales Tax Act, 1990 and Rules thereunder and neither Board nor the Chief Commissioner Inland Revenue, RTO Peshawar, with the approval of the Board has authorized the DCIR E&C-III, Withholding Zone, RTO, Peshawar under section 32 of the Act to exercise the powers of the Commissioner, Withholding Zone RTO, Peshawar hence the impugned show clause notice as well, as the impugned assessment order is patently illegal being beyond jurisdiction of DCIR.
4.It has been further contended that the impugned Assessment Order is also beyond the jurisdiction of DCIR as when KPK Govt. has promulgated its own Sales Tax on Services Act through KPK Finance Act, 2013 w,e,f, 01.07.2013, the officers of Inland Revenue working under the administrative control of FBR,have no jurisdiction to take cognizance of short levy of sales tax, if any, in respect of services including advertisement services.
5.It has been further argued that after promulgation of 18th Constitution Amendment Act, 2010 and in pursuance of 7th NFC Award, the President of Pakistan issued President Order No,5/2010 through M/o Law, Justice and Parliamentary Affairs Notification F-292/2010-Pub dated 10.05.2010 known as "Distribution of Revenue and Grants in Aids Order, 2010 and powers to make laws on services and collection of sales tax on services was given to provincial governments. After promulgation, of Constitutional Amendment Act, 2010 and issuance of President Order, any law framed by the federal government in respect of levy of sales tax on services including withholding rules framed by the federal government through S.R.O. 660(1)/2007 requiring the recipient of advertisement services to withhold tax, has become redundant being ultra vires to the Constitution. The learned AR submitted that the officers of Inland Revenue Working under FBR have no authority to issue notice for recovery of any amount of sales tax on services as sales tax on services has become the sole authority of provinces. Neither the Federal government/FBR has any right on sales tax on services nor the officers of Inland Revenue are authorized to administer sales tax laws on services..
6.The learned AR has further contended that w,e,f, 01.07.2011,the provincial government of Sindh has framed Sindh Sales Tax on Services Act, 2011 and has also framed Sindh Sales Tax Withholding Rules, 2011 where the recipient of advertisement services have not only been declared as withholding agent but has advertisement services have not only been declared as withholding agent but has also been required to deduct sales tax from the payments of the service providers.
As per learned AR, the aforesaid provisions of provincial law clearly stipulate that FBR has no authority to collect or recover sales tax on services rather in respect of services originated from Sindh, the authority to collect or recover sales tax rests with Sindh Revenue Board (SRB).
7.The learned AR has also pointed out that in cases where the persons registered with FBR continued paying withheld amount of sales tax to FBR after promulgation of Sindh ST Act, 2011, SRB had started issuing notices to such taxpayers including the present appellant. Copy of the notice has been attached within memo. of appeal to take the stance that cognizance had clearly been taken by the SRB on account of sales tax on services obtained by the appellant from the service providers located in Sindh and issuance of show cause notice by DCIR RTO Peshawar tantamount to double jeopardy which is not tenable particularly when impugned notice is without jurisdiction.
8.The learned AR has also pointed out that through its Circular No,08/2012 dated 24.09.2012, SRB has required the withholding agents to make payment of the withheld amount of sales tax from the payments due to service providers rendering advertisement services from the province of Sindh to SRB. Under these circumstances, demand of sales tax on advertisement services by the officers of Inland Revenue working under FBR, is patently unlawful.
9.The learned AR has also placed on record that since advertisement services obtained by the appellant is released on nationwide audience, the Punjab Revenue Authority also issued notice dated 10.07.2013 requiring the appellant to make payment of the withheld amount of sales tax to government of the Punjab in pursuance of PRA Circular No,01 of 2013 dated 08.03.2013.It has been contended by the learned AR that the appellant had already contesting the case with SRB when PRA has also demanded the same amount and now FBR has emerged as third party demanding the same amount. The same amount of 16% has been demanded by three revenue collecting agencies without taking into account the agony through which appellant is passing through on account of bad governance and non-settlement of issue between the provincial and federal governments.
10.The learned DR appearing on behalf of the respondent/department has defended the orders of assessing officer and the first appellate authority.
11.We have considered the arguments advanced by the learned AR and have also given due consideration to the contentions of the learned DR appearing on behalf of the department. The record has also been perused. Section 30 of Sales Tax Act, 1990 empowers the FBR to appoint officers of Inland Revenue and in exercise of those powers, it has appointed Commissioner Withholding Zone RTO Peshawar to exercise the powers and perform functions for the purposes of monitoring and enforcement of withholding tax conferred under taxing statutes inter alia including Sales Tax Act, 1990 and rules made thereunder inter alia including WH Rules of 2007. Section 32 of the Act further empowers FBR or CCIR, with approval of FBR, to authorize a DCIR to exercise the powers of a Commissioner. The learned DCIR has not placed any Order of FBR or CCIR through which DCIR Enf-III WH Zone RTO Peshawar hat been authorized to exercise powers of CIR WH Zone RTO Peshawar hence the impugned show cause is beyond jurisdiction. It is a settled principle of law that where show cause notice does not stand the test of judicial scrutiny, all the subsequent proceedings are null and void.
12.The learned DR has vehemently argued that KPK government has authorized FBR to collect sales tax on services but neither any such authorization has been provided till to date nor provincial sales tax laws had been framed by KPK government in the period involved in the instant case. It is evident from the perusal of the Circulars issued by SRB and PRA as well as the Withholding Rules, 2007 issued by the Federal Government that all the three governments i,e, federal government and provincial governments of Sindh and Punjab, .are playing havoc with the taxpayers. Where the taxpayer is complying with the directions of one government, he is declared as defaulter by the other two governments. Under these circumstances, demand raised by DCIR was not sustainable.
Instead of realizing the genuine hardship of the appellant, the DCIR raised the demand of the amount for which demand had already been made by SRB and PRA and this tantamount to double rather triple jeopardy which is not permissible under the Constitution.
13. It is also evident that no material evidence in support of charges leveled in the notice was provided and the appellant's right to contest the case on merits has been usurped as the evidence in support of charges has not been provided which is the basic right of a defendant. As per Pronouncements of superior Courts, it is the primary responsibility of the adjudicating officer to disclose material evidence in support of charges leveled in the show-cause notice enabling the defendant to examine its record and rebut the charges. Further after the promulgation of Provincial Sales Tax Act, 2013 as per 18th amendment in the Constitution, the only provincial government of KPK is competent to pass order about the levy of tax on services w,e,f, 01.07.2013 and onward. Our this point of view is corroborated by sections 116 (1) and section 117 (1)&(4) of the KPK Finance Act, 2013, which for convenience are reproduced as under:-
116. Continuance in Force.---(1) All orders made, proceeding taken and acts done by the Federal Board of Revenue which were in force and in effect before the commencement of this Act, shall continue, in force unless modified pursuant to any provision of this Act or the rules and :egulations made hereunder.
117.Repeal and savings .---(1) The Khyber Pakhtunkhwa Sales Tax Ordinance, 2000. (Ordinance III of 2000) is hereby repealed.
(4) Where so directed by the Government, any tax payable but not paid under the Khyber Pakhtunkhwa Sales Tax Ordinance, 2000 (Ordinance III of 2000) may be recovered under this Act, but without prejudice to any action already taken for the recovery of the amount under the said Ordinance.
14. In this case the proceedings were initiated on 26.09.2013 i,e, well after July, 2013, hence the said proceedings were not pending proceedings as on July 2013, on the date of enactment of the KPK Finance Act, 2013. Therefore, we hold that the original adjudicating officer has acted beyond the jurisdictional norms, as such, his order stands vacated.
' As result, this appeal succeeds.