NAZIR AHMAD, CHAIRMAN.---This Larger Bench has been constituted in the titled appeals remanded by Honourable High Court to resolve the issues whether appellants fall under Rule 4 of the Sales Tax Registration Rules, 2006 for registration as well as claim of exemption under section 65 of the Sales Tax Act, 1990 (hereinafter called 'the Act') remanded by the August Supreme Court of Pakistan. Since, the common issues are involved in the above titled appeals, therefore, this single order shall dispose of the same.
2. We take up the case of Messrs Khan and Co., first, the facts of which in narrow compass emanating from the orders passed by both authorities below as well as ATIR order dated 15.05.2014 are that during the examination of record in post refund audit for the years 2010, 2011 and 2012, the discrepancies of non-payment of sales tax to the tune of Rs.36,478,507/- Rs.24,402,491/- and Rs.22,235,620/- for the years 2010 to 2012 respectively, on the supplies of coal to Kohat Cement Ltd. were observed and confronted through show-cause notice, against which explanation tendered by the taxpayer was treated as unsatisfactory. Resultantly, the assessing officer established the sales tax demand of Rs.36,478,507/-, Rs.24,402,491/- and Rs.22,235,620/- for the years 2010 to 2012 respectively along with default surcharge as well as penalty through impugned assessment orders. Aggrieved by the said treatment, the registered person preferred appeal before CIR (Appeals), who also confirmed the assessment orders for all the three years under consideration.
Against the treatment meted out by the first appellate authority, the registered person came up in appeal before this Tribunal, which was also rejected vide order dated 15.05.2014 recorded in S.T.As.
Nos.62 to 64/PB/2013. The said order of this. Tribunal was challenged in reference before Honourable Peshawar High Court and a number of law questions referred for decision before the Honourable Bench. However, arguments were advanced on three questions only. Their Lordship vide judgment dated 01.12.2014 delivered in STR No.15-P of 2014, remanded the case to this Tribunal on the point of fact that whether the appellants fall within the categories of person liable to registration under Rule 4 of the. Sales Tax Rules, 2006 as per finding given below:-- "Accordingly, for the reasons stated hereinabove, this Court finds that the decision of the Tribunal is correct on the questions of law it deliberated. However, as it has not decided whether the petitioners fall within the categories of persons" liable to registration under Rule 4 of the Rules of 2006, the impugned decision is liable to be set aside and the matter is to be remanded back to the Worthy Tribunal to 'decide the crucial condition precedent, stated hereinabove. Thus, these References are answered in the terms elaborated hereinabove." ---Against the decision of Honourable Peshawar High Court, the appellant/registered person preferred an appeal before the Supreme Court of Pakistan, His Lordship on the issue of exemption claimed by the appellant under section' 65 of the Act directed this Tribunal for examination of the said issue too. Therefore, this Larger Bench shall dispose of the instant appeal issue-wise as under:- Registration under Rule 4 of the Sales Tax Rules, 2006
3. On the issue of registration, whether the appellant was liable to be registered under Rule 4 of the Sales Tax Rules, 2006, the learned counsel appearing on behalf of the appellant/registered person has vehemently argued that as per Rule 4 of the Sales Tax Rules, 2006 several categories have been mentioned, which are liable to be registered under the law. Rule 5 of the Sales Tax Rules, 2006 prescribed the procedure for filing of application for registration and if any person liable to registration does not file any application then under Rule 6 the procedure for compulsory registration has been prescribed. Under Sub-rule (1) of Rule 6 notice has to be issued in prescribed form and a proper order has to be passed under Sub-Rule (2) of Rule 6 declaring that whether the person is liable to be registered or otherwise after providing proper opportunity of being heard to such person. Under Sub-Rule (3) of Rules 6 if the person to whom notice has been issued does not respond then the officer concerned shall pass an order for compulsory registration of such person and proper registration number shall also be allotted to him. As per sub-rule (4) of Rule 6 such person shall be liable for payment of sales tax from the date of compulsory registration. He also explained that it is an admitted position that no such procedure has been adopted by the departmental authorities and appellant being unregistered person was not aware of the procedure envisaged in the Sales Tax Law. Under sub-rule (4) of Rule 6 of Sales Tax Rules, 2006, the department cannot demand the amount prior to the registration of appellant and such demand is totally illegal as well as against the rules and regulation. He concluded that such created demand without fulfilling the Rules is liable to be set aside.
4. In rebuttal to the line of arguments adopted by learned counsel on the issue of Registration and Payment of Sales Tax the learned DR appearing on behalf of the department has referred to paras 17(11) and 18 of the Judgment of the Honourable Peshawar High Court, bearing No.STR No 15-P of 2014, dated 01.12.2014 (hereinafter called the Judgment) wherein it has been directed that the issue of registration be examined in the light of Rule 4 of Sales Tax Registration Rules, 2006. The appellant supplied coal in bulk and tax was withheld from him by Kohat Cement Company Ltd, under section 153 of the Income Tax Ordinance, 2001. As per learned DR, the fact stands established that he is a 'wholesaler', in terms of section 2(47) the Act, and was, therefore, required to get registration under rule 4 (d) himself, He added that the appellant's version of having not been compulsorily registered by the department under rule 6, cannot absolve him of his responsibilities under the Act. Further, being 'liable to be registered', he would still be a registered person in terms of section 2(25) of the Act, as elaborated by the Honourable court in para 9 of the Judgment. He further submitted that the stance of the appellant that being Unregistered person he was not required to pay any sales tax, is not valid in view of the above findings of the Honourable High Court, as well as para 12 of the Judgment. Moreover, making of taxable supplies without getting registration under the Act, constitutes 'fraud' within the meaning of section 2(37) of the Act; so, how the appellant could be exonerated from getting registration himself and payment of Sales Tax.
5. Arguments heard and record perused.
6. So far as, the issue regarding payment of tax prior to registration of registered person is concerned, the matter was also decided although by this Tribunal against the registered person, which was challenged in reference before the Honourable Peshawar High Court by raising as many as nineteen (19) questions to be answered by their Lordship but during the course of hearing the appellant restricted his arguments only to the extent of three (03) questions, one of which was regarding levy of tax prior to registration. While adjudicating the issue, the Honourable Peshawar High Court has thrashed out the issue in the following manner:--
7. Moving to the said issue, it is noted that subsection (1) of Section 3 of the Act is the 'charging section' which provides that, "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 of furtherance of any [taxable activity] carried on by him; and
(b) Goods imported into Pakistan." (Emphasis provided)
8. No doubt, the obligation imposed to pay sales tax under the charging section is upon a 'registered person' who makes supplies during the course of his business. However, when we turn to the definition of the term 'registered person' defined in subsection (25) of Section 2 of the Act, it reads that: "(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. (Emphasis provided).
9. The plain reading of the aforementioned definition expressly brings within the purview of the term 'registered person', not only a person, who is registered but also one who is liable to be registered under the Act. As far as the requirement of registration of a person is concerned, it is noted that Section 14, regulates the issue of registration of a person with the Revenue for the purpose of sales tax under the Act, and it reads: "Section 14. Registration. Under this Act, registration will be required for such person and are regulated in such manner and subject to Rule, as the Board may, by notification in the official Gazette, prescribed," (Emphasis provided)
10.What is important to note, at this stage, is that section 14 (ibid), prior to its present position introduced vide Finance Act of 2004, provided the condition for compulsory registration of persons making taxable supplies or imports. However, the said matter has since then been transposed and prescribed in the Rules 3 to 12 of The Sales Tax Rules, 2006 ("Rules of 2006"). For rendering the opinion on the issue in hand, it would be pertinent to note that the persons required to be registered under the Act, have been prescribed under Rule 4 of the Rules of, 2006, which provides that: "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 manner specified in this chapter, namely:-
(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 million rupees;
(c) ....................
(d) a wholesaler (including dealer) and distributor;"
11. What is striking to note is, that the persons required to be registered under Rule 4 ibid, are also identified and provided in the definition of 'taxable supplies', provided under subsection (41) of section 2 of the Act, which stipulates as under:-- "taxable supply" means a supply of taxable goods made by an importer, manufacturer.
Wholesaler, (including dealer), distributor or retailer other than a supply of good, which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero percent under section 4".
12. The essential theme envisaged in the Act like other fiscal statues, is to draw into the formal economy, as many persons as possible. One of the means adopted by the legislature to achieve the said aim, is to provide incentives to persons who registered, while expressly disallowing the same, to those who fail to do so. Such is also the spirit seen in those who fail to do so. Such is also the spirit seen in the Act. In this regard, the 'proviso' provided in the very definition of 'registered person' is an illustration of the intention of the legislature.
The crucial point remains that a person, who falls within the categories mentioned in Rule 4 of the Rules of 2006, has to be registered under the Act and cannot absolve himself from the obligation of payment of sales tax, just on the ground that he has not registered himself under the Act. ---However, after detailed deliberation on the issue under consideration, the same was set at naught by the Honourable Peshawar High Court at para 17(II) of the judgment in the following manner:- "The petitioners cannot be dislodged from their claim of not being liable to registration and thereby made to pay sales tax on the supplies made to the Company, as the record is silent regarding the fact, whether the petitioners fall within the categories of persons liable to registration under Rule 4 of the Rules of 2006."
7. We find that above authoritative judgment on the issue under consideration delivered by the Honourable Peshawar High Court leaves no room for us for further comments as their Lordship have categorically held that 'liable to be registered' in statute means the registered person. It is worth mentioning here that the Honourable Supreme Court of Pakistan while giving directions to the ATIR on the issue of exemption under section 65, has not interfered with the above findings of the Honourable Peshawar High Court, hence the Apex court endorses the observations of the High Court on this issue. Therefore, we don't tend to agree with the arguments of learned counsel for the petitioner that Rules 6 of the Sales Tax Rules applies on the petitioners. While remanding the issue under consideration, the Honourable Peshawar High Court has restricted our jurisdiction only to the fact that whether the appellant falls under different categories given in Rule 4 of the Sales Tax Rules, 2006. Hence, for the sake of brevity Rule 4 of the Sales Tax Rules, 2006, is reproduced hereunder:-- "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 table activity carried on by them, if not already registered, are required to be registered in the manner specified in this chapter, namely:-
(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 million 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 if 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 his zero-rated supplies
8. Admittedly, the registered person of the case in hand supplying coal to Kohat Cement Company Ltd., in bulk falls under the category (d) of Rule 4 being wholesaler. So much so, as per Tax Profile available on file, he has himself declared his status as wholesaler. The appellant for the purpose of Registration under Rule 4 falls under clause (d) as wholesaler, therefore, in our considered view being a wholesaler, the appellant himself was required to be registered under the Act. Therefore, it has rightly been declared as liable to be registered as registered person for the purpose of sales tax levy.
Exemption under section 65 of the Sales Tax Act, 1990
9. On the issue under consideration, the learned counsel has vehemently argued that case of the appellant is fully covered under section 65 of the Act as all the conditions mentioned therein are fully explained by the petitioner in his application. He has apprised the court that in the whole area neither the contractors/suppliers of coal were registered nor appraised by the department that sales Tax had to be. charged and paid on such supplies. He asserted that it is an admitted fact that prior to registration with Sales Tax department, no sales tax was charged nor included in the value of coal supplied to Messrs Kohat Cement Company since, 2000. The non-levying or non-charging of Sales Tax on supply of coal remained a general practice throughout the Khyber Pakhtunkhwa
(KPK) due to unawareness and without any motive for evasion or avoidance of Sales Tax. He added that this fact can be ascertained from the fact that soon after the matter came to the knowledge of appellant when he applied for registration under the Act and thereafter he started charging and collecting tax on such supplies and deposited in the government treasury. Prior to that, none of the suppliers recovered any tax. Furthermore, he submits that no loss to government exchequer has been caused as the recipient of the coal being a registered person has deposited all the duties and taxes and input tax credit has been claimed. According to him, the case of the appellant is also covered under section 65 of the Sales Tax Act, 1990 due to the reason that appellant made supplies on per Ton Commission basis from the Coal Mines of Darra Adam Khel, the Tribal Area of FATA, to Messrs Kohat Cement Company Specially when the appellant was neither a registered person nor liable to be registered under the Act and the appellant with bona fides did not charge the Sales Tax as all Contractors/Suppliers have not been charging sales tax from Coal Mines at Darra Adam Khel located in the Tribal areas of FATA adjoining District of Kohat, as general practice as Sales Tax is not extended to FATA under Articles 246 and 247 of the Constitution of Islamic Republic of Pakistan. In this respect, reliance has been placed on the judgment passed by the August Supreme Court of Pakistan in case Titled Caltex Oil Limited v. Collector (2005 PTD 480) and Judgment of Tribunal in S.T.A. No. 1633/LB of 2009 Reported as 2011 PTD 1844.
10. On the other hand, the learned DR argues that exemption under the referred section can be granted by the Federal Government only when it is satisfied that due to inadvertence and as a general practice sale tax has not been charged on taxable supplies by a person in an area. The appellant's case does not fulfill this requirement: firstly, because no such notification has been issued by the Federal Government, rather his application has already been turned down by the Federal Board of Revenue vide its order C.No. 3(14)ST-L&P/2013, dated 18.06.2015: secondly, it is hard to accept that the non-payment of sales tax by the appellant was due to inadvertence , because he had filed Income Tax Returns for the periods under reference and claimed Income Tax Refund therein on the basis of deduction made by his client, Kohat Cement Ltd., under section 153 of the Income Tax Ordinance,2001, on the supply of coal in bulk. So, being aware of Income Tax matters, and not knowing the Sales Tax responsibilities, both of which are dealt with by the same office, is not understandable. Besides, the Authorized representative of the appellant, who had filed his Income Tax return and Refund application, is the same, i.e., Mr. Javed Hussein, as at the time of filing of Sales Tax appeal before the Learned CIR (Appeals) and for the first time before the honourable Tribunal. So, if it is presumed that the taxpayer was not versed with the sales tax matters himself, his lawyer was well aware of his client's responsibilities under the Act, and, therefore, it can be safely inferred that the act of not registering himself and not paying sales tax by the appellant, was quite deliberate and not due to inadvertence. This assertion is further corroborated by the fact, that even after having been confronted with the sales tax liability through show-cause notice, vide C.No.IRS/Audit-IX/M/s Khan and Co/ 2001/347, dated 20.12.2012, and subsequent passing of orders, the applicant did not bother to fulfill his obligations under the act.
According to him the stance taken by the appellant that due to lack of general practice in the area, he did not pay sales tax on the supply of coal, is legally and factually incorrect. In clause (a) of section 65, the words "any supply"(and not a specific supply) on which sales tax has not been charged, have been used; meaning thereby that if there is an instance of any supply (not necessarily coal) that has been subjected to Sales Tax in that area, the applicant would not be allowed to seek refuge under the clause ibid. In support of his arguments, he has furnished before us the profiles of two such cases who are paying tax belonging to Darra Adam Khel. With regard to the second stance taken by learned counsel that non-levy or non-charging of sales tax on supply of coal remained a general practice throughout the KPK due to unawareness. He is of the opinion that this claim of the appellant is baseless as many coal suppliers (list enclosed as annexure-II) in KPK, including those belonging to the adjoining area of Darra Adam Khel, like Kohat, Hangu and Karak, are registered under the Act. So, the argument of prevailing/general practice of non- payment of sales tax by other coal suppliers is also not tenable, and merits rejection. He contends that as per clauses (b) and (c) of section 65 of the Act, if the tax was not recovered by the registered person, due to inadvertence or general practice (which is though not so in the taxpayer's case but is presumed for the sake of argument), he was under obligation to star-paying sales tax from the date it came to his knowledge. But as is.evident from the record, the appellant has not paid any sales tax ever since the issuance of show-cause notice to him in the year 2012. Here it is also clarified that the appellant cannot take the plea of being Unregistered Person, because, as already mentioned, in the Judgment it has been held by the honourable court that under section 2(45) both 'registered' and 'liable to be registered' are covered within the definition of "Registered persons". For ease of reference the relevant para is reproduced hereunder: "The plain reading of the aforementioned definition, expressly brings within the purview of the term 'registered person', not only a person, who is registered, but also one, who is liable to be registered under the Act. "(Para 9 of the decision). ---He submits that once covered under the definition of Registered person, the appellant was required to charge Sales Tax on the taxable supplies made by it. To elaborate the matter further, para 12 of the judgment categorically says that the appellant cannot be excused from the payment of Sales Tax merely of his being unregistered person. Relevant portion of the para reads:-- "The, crucial point remains that a person, who falls within the categories mentioned in rule 4 of the Rules of 2006, has to be registered under the Act and cannot absolve himself from the obligation of payment of sales tax, just on the ground that he has not registered himself under the Act." (Para 12 of the decision) ---According to him since, by virtue of non-payment of sales tax the appellant has not fulfilled one of the essential conditions of section 65 of the Act, he is not entitled to exemption.
11. After hearing the arguments advanced the representatives appearing on behalf of the rival parties, in order to arrive at a just conclusion, it would be appropriate to have a glance on the provisions of section 65 of the Act, which read as under:-
65. Exemptions of tax not levied or short levied as a result of general practice.---Notwithstanding anything contained in this Act, if in respect of any supply the Federal Government is satisfied that inadvertently and as a general practice:-
(a) tax has not been charged in any area on any supply which was otherwise taxable, or according to the said practice the amount charged was less than the amount that should have actually been charged;
(b) the registered person did not recover any tax prior to the date it was discovered that the supply was liable to tax; and
(c) the registered person started paying the tax from the date when it was found that the supply was chargeable to tax; it may, by a notification in the official Gazette, direct that the tax not levied or short levied as a result of that inadvertent practice, shall not be required to be paid for the period prior to the discovery of such inadvertent practice.
12. The bare perusal of above leads us to conclude that exemption under section 65 of the Act shall be available to registered person subject to fulfillment of above mentioned three conditions as (a), (b), and (c) and C that all three conditions are to apply collectively.
13. With regard to the fulfillment of condition (a) laid down as per section 65 of the Act, the main gist of the arguments advanced by learned counsel is that non-charging of sales tax on supplies is a general practice throughout of KPK due to unawareness of such levy. On the other hand, the learned DR has dislodged the stance taken by learned counsel by furnishing before us online verification of the following two cases wherein the registered persons are charging the sales tax on supplies:- Sr. No.Business/Branch NameBusiness/Branch AddressSTRN 01 Aslarn & Co. Kohat Road, Bazid Khel, Dara Adam Khel, Peshawar2100415176710 02 Juniper International3-Sardar Filling Station, Dara Adam Khel Kohat Peshawar0502999902964 14.The fact of the matter is that appellant has obtained coal mines on lease at Darra Adam Khel and after excavation coal supplied the same to Kohat Cement Factory located in settled area who is also a Registered person. The activities at Darra Adam Khel which is undisputably a tribal area and tax laws are not applicable to that area but the supply was made in a settled area and which is taxable, therefore, the argument of the learned counsel that the appellant belong to tribal area the sales tax is not applicable is not tenable and is therefore overruled.
15. Since the supply was made in settled area and to a registered person who admittedly has withheld income tax also, the appellant cannot be bailed out from the paying of sales tax on such supply. It was also the duty of the purchaser to withhold sales tax under sales tax withholding Rules, 2007.
16. As already held in pre paras that incidence of supply took place in settled area i.e. Kohat District, therefore, it will not be proper for the purpose of clause (a) of section 65 to specify Darra Adam Khel as area where as a general practice tax is not paid, in fact, it will be the district Kohat where actually the supply of coal was made.
17. With regard to rest of the following two conditions laid down as per section 65 of the Act:--
(b) the registered person did recover any tax prior to the date it was discovered that the supply was liable to tax; and
(c) the registered person started paying the tax from the date when it was found that the supply was chargeable to tax; ---the main thrust of the line of arguments adopted by learned counsel is that the registered person of the case in hand made supplies from coal mines of Darra Adam Khel, which is Tribal area of FATA to Messrs Kohat Cement Company Ltd., during the period when he was not liable to be registered under the Act and just after knowing about the supply of coal as taxable, the registered person of the case in hand started charging and collecting sales tax on coal supplies and deposited in the Government Treasury.
18. It is correct to the extent that the registered person/appellant has not charged any sales tax on the coal as it was excavated from mines which were obtained on lease by him but as far as his claim that after knowing about the supply of coal as taxable he started charging /paying sales tax is concerned no proof in this respect is provided by the appellant Messrs Khan and Co. whereas in the case of Messrs Hayat and Co., as per appellant, the business was discontinued. Thus, the claim of charging/paying sales tax remains unsubstantiated and needs verification, therefore, we remand the case of Messrs Khan and Co. only on this issue to the taxatjon authority having the jurisdiction of the case to verify that whether the claim of charging sales tax is correct or not.
19. The nutshell of the above discussion is that subsection (a) of section 65 is decided against the appellants and clause (b) in his favour whereas clause (c) is remanded to the tax authorities in the case of Messrs Khap and Co.
20. The case-law relied on by the learned counsel for the appellant is being distinguishable is not on all fours of the instant case.
21. The appeals are decided (sic) to the extent as indicated above.