SYED ARSHAD ALI, J.- This Sales Tax Reference filed under section 47 of the Sales Tax Act, 1990 (hereinafter referred to as "Act of 1990") has been preferred against the order dated 5.6.2014 passed by the learned Appellate Tribunal Inland Revenue (Headquarter), Islamabad by formulating the questions of law arising therefrom as follows :-
(A) Whether the preparation(cooking) of foods stuff & its service to the guests/participants of the functions in the wedding hall does not come in the defini tion of if manufacture" as available under clause (17) of Section 2 of the Sales Tax Act, 1990?
(B)Whether the Honourable Appellate Tribunal was justified to over-rule the clarification put forth by the Ministry of Law and Justice Government of Pakistan vide office Memorandum No.530/2009- Law-1 dated 27.7.2012 whereby it has been established that manufacturing and supply of food is a taxable activity and Federal Board of Revenue is empowered to collect sales tax thereon?
(C) Whether the Honourable Appellate Tribunal-IR has not erred in law on relying upon the FBR's Circular No. 105 (2)S-IR-III/201 1 dated 25.8.201 1 and ignored the substantive law of the Ministry of Law and Justice aforementioned clarification?
(D) Whether it is not a well-settled princ iple of law that when there is a dispute between the Statute and the clarification/circulars, the Statute being primary law shall prevail?
(E) Whether any specific exemption from the levy of the sales tax is available to the respondent business concern on supply of foods (in the capacity of "Caterer") in Sixth Schedule to the Sales Tax Act, 1990?
2. Brief, but essential, facts of the case are that respondent business concern is carrying its business under the name and style of M/S Shiraz Arena Deans Trade Center, Peshawar. The case of petitioner- department is that the respondent business concern is dealing in the business of running a wedding hall in which it provides both services and food to its clients. The respondent business concern was compulsorily registered under the provisions of the Act. Since, the respondent business concern did not pay any sales tax, therefore, the petitioner-department conducted monitoring of the respondent business concern through a monitoring team constituted under section 40B of the Act of 1990. The said monitoring team reported that besides providing various services to the clients at its wedding hall, the respondent business concern is also engaged in providing food services to its client. On the basis of said report the petitioner-department issued a show-cause notice dated 13.3.2013 relating to the financial year 2009-2010. It was alleged in the said show- cause notice that the audit/monitoring team has reported that respondent business concern has submitted a false statement and forged documents pertaining to its claim to the effect that no catering of any type is provided by the wedding hall rather the wedding hall has entered into agreement with various other persons/clients who provide catering services to the clients of the respondent business concern at the wedding hall. However, upon verification from the alleged reported clients who were purportedly providing food services to the clients of the respondent business concern, they had denied to have executed any such agreement with the respondent business concern for providing food services to the clients at the wedding hall of the respondent business concern. It is further alleged that the said monitoring team had also reported that during the monitoring period from 25.5.2012 to 10.6.2012, the respondent business concern was providing food services and its clients made payment against the same.
3. The precise defense of the respondent business concern was that the Deputy Commissioner Inland Revenue had no authority under section 25 of Act of 1990 to carry out audit of an exempted activity. According to the respondent business concern the business of marriage halls and lawns were brought in the sales tax net by virtue of Entry no.1 and 1(b) of The Schedule to the North West Frontier Province Sales Tax Ordinance, 2000 ("Ordinance of 2000"), however, through N.W.F.P. Finance Act, 2005, the words "marriage halls, lawns" were omitted from Entry no.1 ibid and sub-entry (b) was also omitted which at the time of omission read as "Services provided or rendered by marriage halls and lawns." It was also claimed that since the respondent business concern was providing services to its clients, which at the relevant time was Provincial subject, therefore, they were exempted form payment of sales tax under the Act of 1990. The respondent business concern has further relied on a circular of Federal Board of Revenue ("FBR") no. C.No.105(2)S-IR-III/2011 dated 25.8.2011, wherein, the FBR has clarified that "when services provided by marriage halls are exempt from sales tax, it would mean that all services, which a marriage hall provides in the normal course of business, are exempt from sales tax.
Provision of food/drinks in a marriage hall is rather an essential service provided by it in the normal course of business and, therefore, cannot be subject to tax separately."
4. The Assessing Officer vide order dated 13.3.2013 rejected the defense / explanation offered by the respondent business concern and passed an order of payment of Rs.15,345,158/-. Appeal against the said order was also dismissed by the Commissioner Inland Revenue (Appeals) vide order dated 31.7.2 013. Aggrieved of the aforesaid orders, the respondent business concern filed second appeal before the learned Appellate Tribunal Inland Revenue (Headquarter) Islamabad, which was accepted by the learned Tribunal through impugned order dated 5.6.2014, hence, the instant reference.
5. We have heard learned counsel for the parties and have gone through the record with their valuable assistance.
6. The following grounds prevailed before the learned Appellate Tribunal by allowing the appeal:-
(i) That the marriage halls and lawns were brought under the provisions of sales tax net by virtue of Entry No.I and 1(b) of "THE SCHEDULE" to the then North West Frontier Province Sales Tax Ordinance, 2000, however, by NWFP Finance Act, 2005, the words "marriage halls, lawns' were omitted form Entry No.1 ibid; and
(ii) That the respondent business concern was subject to payment of sales tax under the enabling provision of NWFP Sales Tax Ordinance, 2000, therefore, the Sales Tax Act, 1990 was not applicable to their business in view of the circular issued by the FBR dated 25.8.2011, whereby, it was specifically mentioned that the services provided by the marriage hall are exempt from the sales tax, which includes the provisions of food and drinks in the marriage halls.
7. The assertions of the respondent business concern that it neither prepares nor provides food services to the clients has been finally determined by the lower forums by holding that the respo ndent business concern does in fact provide food services to its clients. Since this Court, while enjoying very limited jurisdiction, can only answer the questions of law , therefore, we do not deem it appropriate to fall in the realm of adjudicating upon this fact.
8. The petitioner-department does not deny that neither they have jurisdiction nor they have taxed the services of the respondent business concern which they provided to the clients rather their case is as to whether the respondent business concern is liable to pay sales tax on providing food items to the clients under the Act of 1990. Therefore, the matter to the extent that the respondent business concern being service provider falls within the regime of Ordinance of 2000 and their activity of providing service to the clients has not been pressed by the petitioner-department.
9. The moot question before us is wheth er the activities of the respondent business concern i.e. providing food services to the clients can be taxed by the petitioner-department under the Act of 1990. To answer this query we would like to refer to the charging section of the Act of 1990 i.e. section-3 of the Act of 1990, which read as under:- Sec. 3 Scope of Tax.- (1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of {seventeen}per cent of the value of-
(a) Taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him; and
(b) Goods imported into Pakistan, irrespective of their final destination in territories of Pakistan.
10. Under clause (a) ibid, the sales tax at the rate of 17% of the value of the goods supplied in furtherance of any taxable activities are liable to payment of sales tax. In order to attract section 3(a) ibid for charging sale tax, the following ingredients are the condition precedent: i. Supplies are to be taxable. ii. The person making supply should be a registered person. iii. The said supply should be in furtherance of taxable activity .
The word "supply" has been defined under Section 2(33), of the Act of 1990 which read as:-
(33) "Supply" means a sale or other transfer of the right to dispose of goods as owner , including such sale or transfer under a hire purchase agreement, and also includes- a) putting to private, business or non-business use of goods produced or manufactured in the course of taxable activity for purposes other than those of making a taxable supply; b) auction or disposal of goods to satisfy a debt owned by a person. c) possession of taxable goods held immediately before a person ceases to be a registered person; and d) In case of manufacture of goods belonging to another person, the transfer or delivery of such goods to the owner or to a person nominated by him: Provided that the Federal Government, may by notification in the official Gazette, specify such other transactions which shall or shall not constitute supply .
Whereas, the word "Taxable Activity" has been defined under Section 2 (35) of the Act of 1990, which read as under:- (35). "Taxable Activity" means any economic activity carried on by a person whether or not for profit, and includes-
(a) an activity carried on in the form of a business, trade or manufacture;
(b) an activity that involves the supply of goods, the rendering or providing of services, or both to another person;
(c) a one-off adventure or concern in the nature of a trade; and
(d) anything done or undertaken during the commencement or termination of the economic activity . but does not include-
(a) the activities of an employee providing services in that capacity to an employer;
(b) an activity carried on by an individual as a private recreational pursuit or hobby; and
(c) an activity carried on by a person other than an individual which, if carried on by an individual, would fall within sub-clause (b)
Since the afore said definition does not give any impression that the petitioner-department has any jurisdiction to tax the services, therefore, the concept of severability of providing service and goods in once and the same transection has been taken care of and recognized by the Act of 1990 under Section 2 (44), which read as under:-
(44) "Time of Supply," in relation to :- a) a supply of goods, other than under hire purchase agreement, means the time at which the goods are delivered or made available to the recipient of the supply or the time when any payment is received by the supplier in respect of that supply , whichever is earlier; b) a supply of goods under a hire purchase agreement, means the time at which the agreement is entered into; and c) services, means the time at which the services are rendered or provided.
Provided that in respect of sub-clause (a), (b) or (c) where any part payment is received.
(i) for the supply in a tax period, it shall be accounted for in the return for that tax period; and
(ii) in respect of exempt supply it shall be accounted for in the return for the tax period during which the exemption is withdrawn from such supply;
11. The effect of combined reading of the aforesaid provisions are that the supply of goods falls within a different category from providing services and under section 2 (44) (c) ibid in a contract / transaction when the services as well as the goods are provided together, any part payment received against the services constitute a different head of receipt relating to the services. Therefore, the doctrine of sever ability in a transaction is fully applicable in a contract where foods as well as services are provided to the clients. Therefore, it is clear from the bare reading of the aforesaid provisions that any business concern which provides both services and goods simultaneously either in one transaction or more is liable to pay sales tax on the activity of supply of goods to the client.
12. The learned Appellate Tribunal has unnecessarily mixed up the two different concepts and has relied upon the circular dated 25.8.201 1. At the time of audit, not only the aforesaid circular was in field but the FBR had also issued an of fice memorandum, the relevant portion of the same is reproduced herein below for convenience :- "Now FBR has based their case on the premise that the business of hotels, restaurants and caterers cannot be confined to services only but also includes manufacturing and supply of goods, which is a Federal subject. A threadbare examination of the reasoning given by FBR (Flag-Z) shows that hotels, restaurants and caterers provide both services and manufacturing/supply of goods, but the ratio of services and manufacture/supply is different for different classes of hotels and restaurants while for caterers a fix ratio of services and manufacture/supply can be drawn.
It is seen from the above discussion that a ratio between services and manufacture/ supply is not a legal question. For this FBR and SRB have to join heads, with or without NFC, in order to ascertain the said ratio for various classes of hotels, restaurants and for the caterers. The FBR and SRB may workout a possibility of determining a fix ratio for all classes of hotels and restaurants, if such classification is not feasible."
13. We are conscious of the fact that both the circulars are not applicable to the case of the respondent business concern as essentially the petitioner-department was carrying the audit of the respondent business concern for the tax year 2009-2010 and at that time none of the circular was in field. We are also conscious of the fact that the subsequent circular was issued pursuant to amendment in Entry No.49 under the 18 Amendment, whereby , the sales tax on service became the provincial subject in clear words. In view of the above, the legal position is clear that when the activities of the respondent business concern did fall within the mischief of taxable activities and was chargeable under section 3 of the Act of 1990 then any circular in contravention of the same will obviously be ultra- vires. It is settled law that rules/notification being a subordinate legislation is subservient to the parent statute and issuance of any instrument/notification under delegated authority is aimed to fulfill and advance the aim of the parent statute and cannot nullify the express provision of the Act. Reliance can be placed on law laid down by August Supreme Court of Pakistan in "Mian Zainuddin Versus Punjab Local Government" (1985 SCMR 365}, "Pakistan through Secretary Finance Versus Aryan Petrochemical Industries (Pvt) Limited" {2003 SCMR 370), "National Electric Power Regulatory Authority Versus Faisal Abad Electric Supply Company Limited" {2016 SCMR 550 ) and "Sadiq Hussain Majid Versus Secretary Government of Pakistan" { 2007 PTD 2188 ).th
14. True that under section 72 instructions issued by the FBR are binding on its subordinate officers, however, the same are subject to two exceptions: firstly, the said instruction must not contravene the applicability / charge ability of the sales tax under the provisions of Act of 1990 and secondly, the said instructions are only binding on the officers, who are carrying administrative functions and are not binding on the officers, who are performing quasi-judicial functions as provided in proviso to section 72. Reliance is placed on "The Central Board of Revenue, Islamabad Versus Sheikh Spinning Mills Limited" {1999 SCMR 1442}. It was held by the August Supreme Court that : "It seems to be well-settled proposition of law that the Central Board of Revenue, or for that matter even the Federal Government, cannot control or curtail judicial adjudication power vested in the forum provided under the relevant law by giving a particular interpretation to a particular provision of the relevant law or by issuing notification/SRO for that purpose."
15. Therefore, we hold that irrespective of the fact whether the activities of the respondent business concern i.e. providing foods services falls within the meaning of manufacturing or not, the said supply is taxable under section 3 of the Sales Tax Act, 1990 and the circular dated 25.8.2011 is ultra vices to the Act, therefore, this Reference is answered in positive and resultantly, the impugned order of learned Appellate Tribunal is hereby set-aside.