SYED ARSHAD ALI, J.- Through this common judgment, we intend to dispose of Writ Petition No.4254- P/2015 and Writ Petition No. 4223-P/2017 , as in both the cases a common question of law and facts are involved.
Petitioners, seek the constitutional jurisdiction of this Court praying that:- "On acceptance of instant writ petition, this Honourable Court may be pleased to:- A) Declare that petitioner is entitled under the law / GST Act, 1990 for adjustment of input tax against output tax ibid for determination of tax liability; B) Direct respondents No.2-5 to allow the petitioner to add input tax / add the input of GST in its invoices for year 2012; C) Direct respondents No.2-5 to release the outstanding bills of petitioner (Annex. 1) without any further delay and indeed after tax deduction under Section 7 of the GST Act, 1990; D) Any other relief appropriate in the circumstances but not specifically asked for may also be granted please; and E) Direct respondents No.2-5 to release the outstanding bills of petitioners without deduction of General GST.
2. It is averred in the petitions that the petitioners are "Private Limited Companies" incorporated under the Companies Ordinance, 1984 and are engaged, inter-alia, in the business of printing and publishing of books.
The petitioners are also registered as "Printer and Publisher" with the respondents i.e. Khyber Pakhtunkhwa Text Book Board ("KPTBB"), which is a statutory body created under Khyber Pakhtunkhwa Text Book Board Ordinance, 1971 ("Ordinance"). The KPTBB up to the year 2015 outsourced the task of printing material, especially the printing of textbooks, to different registered printers against fixed rates. In the year 2012 the KPTBB allocated the printing of different textbooks of different quantities to the petitioners' Companies for the academic session 2013-14 which was followed by execution of agreements between the parties. It is alleged in the petition that the supply of books is exempt from the payment of GST under S.No.34 of Table-1 of the Sixth Schedule to the GST Act, 1990 ("Act of 1990"). Moreover, only the Service mentioned in the Table-II of the First Schedule to the Federal Excise Act, 2005 are chargeable to Federal Excise Duty ("FED") @ 16% and the services mentioned under SRO 550(1)2006 dated 5.6.2006 are the ones on which FED is collected in GST mode. The printing services is neither mentioned in the Table-II of the First Schedule to the Federal Excise Act, 2005 nor under SRO 550(1)2006 dated 5.6.2006, therefore, as per the clarification issued by FBR printing services are not chargeable to the Federal Excise Duty even. That earlier while clearing the outstanding bills of the work done by the petitioner companies for the year 2012, the respondents No.2 to 6 raised a demand for the payment of General GST "GST" on printing process with a caution that the said amount of GST, if not paid, would be deducted from the bills to be paid by the Board/respondents No.2 to 5 to the petitioner. Since neither GST was chargable on printing of books nor the same was ever demanded/charged by the KPTBB as well as by the Sales Tax Department previously, therefore, invoices/bill for the above mentioned publishing contracts of 2012 were issued by the petitioner to respondents No.2 to 5 without the inclusion of GST, however, it was later disclosed that this Court in judgment dated 13.5.2012 passed in Tax Reference No.11-P/2013 has held that process of printing process by vendors to the KPTBB are not exempt from GST. Against this the petitioner companies intimated to the respondents that since the process pertaining to printing of books had been declared to be taxable after the judgment of this Court, whereas, the invoices of the printing work, already submitted may be returned so that the amount of GST could be included in the same or the payment be made with the inclusion of tax as per section 64-A of Sales of Goods Act, 1930. It was asserted that since the GST is an indirect tax and its incident is passed on to the consumer, therefore, withholding of any amount of GST from the petitioner's value of supply would defeat the very scheme of GST as the incident of tax would not be passed on to the consumer, rather, the petitioner would be burdened with the tax, which will be illegal and against the provisions of adjustment as provided under Section 7 of the Act of 1990. That on one hand, the respondents No.2-5 was demanding GST from petitioner against the concluded contracts of 2012 while on the other hand, despite judgment of this Court dated 13.5.2013, the respondents No.2-5 vide Minutes of the Meeting dated 19.6.2013 resolved that since the supply of books is exempt under Schedule Sixth of the Act of 1990, therefore, it was decided not to insist on printers to register with GST Department with further decision to release the amount withheld from printers against the GST recovered. That in the circumstances, the petitioner was constrained to approach respondents with request not to deduct or retain GST from its outstanding bills, especially when the same was neither applicable nor demanded when the contract of work was signed, executed and completed. That the respondents instead of giving any plausible justification of the queries raised by the petitioner, withheld GST from the long outstanding invoices of the petitioner company and had sent account payee cheque in favour of the petitioners' company in a sum of Rs.1,718,413/- dated 7.8.2013 against the total outstanding amount of Rs.12,876,479/. The petitioner under protest returned the said cheque back to respondents No.1 and 2.
3. Respondents were put on notice. Respondent KTBB filed its para-wise comments, wherein, they averred that the KPTBB is a withholding agent in terms of SRO 660(1) 2007 dated 30.6.2007 availing services of various printers for printing located in Peshawar and whereas the supply of textbooks and syllabus (books and publications) is exempt under the Sixth Schedule to the Act of 1990. The printing done by various printers/vendors during the process for respondent No.3 is taxable under Section 3 read with sub-section 16 of Section 2 of the Act of 1990. However, respondent No.3/Chairman, KPTBB neither withheld the GST on printing services nor the printers paid the due taxes thereon. That during the course of withholding audit of respondent No.3, conducted for the Tax period 1.7.2009 to 30.6.2010 under SRO 660 (1) 2007 dated 30.6.2007, it was observed by the audit team that no GST was charged / withheld by respondent No.3 from the printers. Accordingly, the withholding agent (respondent No.3) was confronted with show cause notice NO CXII/RTO/Textbook Board/143, dated 2.4.2011, to deposit the GST amount 30,220,339/- along with default surcharge and penalty into the government treasury. The aforesaid order of the Assessing Officer was set- aside by the Commission Inland Revenue (Appeals) and the same was maintained by the learned Appellate Tribunal Inland Revenue, Peshawar vide its order dated 20.2.2012. However, a Tax Reference was filed before this court, which was allowed and by setting aside the order of learned Appellate Tribunal Inland Revenue, Peshawar, case was remanded back to the Tribunal to resolve and adjudicate the involved controversial points. The learned Appellate Tribunal Inland Revenue, Peshawar vide order dated 28.1.2013, set-aside the order of the Commissioner, Inland Revenue (Appeals) Peshawar and consequently, maintained the order of Assessing Officer, whereby, KPTBB was asked to deposit the GST. On a further Tax Reference filed before this Court, this court maintained the order of learned Appellate Tribunal. After the judgment/order dated 13.5.2013, passed in STR No.11-P/2013, the KPTBB deposited a sum of rupees thirty (30) million as GST into the Government Treasury for the year, 2009. The issue regarding deduction of GST on the printers charges bill of the Board's printers was considered after the court's order/judgment and it was decided that henceforth deduction of sale tax as per government prevailing rates be started from all the pending bills of the printers and the amount being thus accumulated is to be deposited into the Government Treasury without further loss of time. The GST has been deducted from all the pending bills of the printers without any discrimination and without inclusion of sale tax in the pending bills strictly in accordance with the direction of this Court and no one has been treated differently in this regard, hence, the assertions and allegations leveled by the petitioners are highly baseless and unfounded.
4. Learned counsel appearing on behalf of petitioner has argued that the GST being an indirect tax, the petitioner company has a statutory right under Sections 7 & 8 of the Act of 1990, to adjust the input tax from the output tax; that the GST was not applicable till the execution / completion of the contract, which at the time of judgment of this court, was a past and closed transaction; that the GST was neither reflected in the tender nor included in the contract, therefore, in the invoices, the petitioner company would not include the GST and therefore, when the petitioner did not include the GST in sale invoices/agreement then how it could be recovered / deducted from its bills; that the GST, being indirect tax, its incidents to be passed on the customer . He has placed reliance on a judgment [Customs, Central Excise and GST Appellate Tribunal] reported as 2006 PTD (Trib.) 1428 and another judgment of [Federal Tax Ombudsmen] reported as 2004 PTD 1267 in case titled "M.M.T .L Pakistan (Pvt) Ltd Versus Secretary .
Revenue Division, Islamabad".
5. As against, the learned Counsel for KPTBB and respondent No.6, while controverting the arguments of learned Counsel for petitioner has argued that the matter has been finally decided by this court in Writ Petition No.2484-P/2013, dated 19.4.2017, therefore, respondent-KPTBB, being a withholding agent, is bound to withhold GST from the petitioner's bills.
6. We have considered the arguments advanced by learned Counsels for the parties in light law and facts available on the record.
7. The KPTBB is a statutory body established under 1971 Ordinance KPK having the mandate of production and publication of text books for class 1 to XII and other supplementary reading material relating to text books and guide books for teachers.
8. At the relevant time, KPTBB would outsource the printing of books to printing companies on certain terms and conditions. Since, under section 13 of Act of 1990 read with Sixth schedule of Act of 1990, supply of books are exempt from levy of GST, therefore, in order to render any finding on the issue whether the KTBB, being a withholding agent under GST Special Procedure (withholding) Rules, 2007 issued through S.R.0.660(1)12007, Islamabad dated 30.6.2007, (hereinafter referred as "Rules") is liable to withhold the GST from the invoices/ supplier receipts of petitioner , it would be appropriate to first comprehend the activities/work assigned to the petitioner by the KTBB through an agreement dated 30.8.2012 ("Agreement").
9. It is evident from the Agreement, that the mandate to exclusively publish and provide textbooks to the educational institutions in Khyber Pakhtunkhwa ("KPK") vests with KPTBB. In order to provide the supply of the textbooks to the educational institutions in KPK at the time of commencement of academic session, the KTBB caused printing of books through different printing companies. The salient features of the agreement are as under:- I. KPTBB provided printing material to the printing companies.
II. The printing companies print, bind, finish and compile the desired books.
III. Handover/supply the finished books to the KPTBB well in time.
10. In order to appreciate the question of the responsibility of the KTBB to withhold GST from the invoices/bills of the printing companies who had printed the textbooks and then provided the same to KTBB we have to reproduce the enabling provisions of Act of 1990 in order to effectively answer the aforesaid query, qua payment of GST by the petitioner on the questioned transaction.
"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 (eighteen) per cent of the value of
(a) taxable supplied made in Pakistan by a registered person in the course or furtherance of any (taxable activity) carried on by him; and
(b) goods imported into Pakistan. "
(c)
S.2(12) "goods" includes every kind of movable property other than actionable claims, money , stocks, shares and securities.
S.2.(33) "supply" includes sale, lease or other disposition of goads in furtherance of business .carried out for consideration and also includes--
(a) putting to private, business or non-business use of goods acquired, produced or manufactured in the course of business;
(b) auction or disposal of goods to satisfy a debt owed by a person;
(c) possession of taxable goods held immediately before a person ceases to be a registered person; and
(b) such other transaction as the Federal Government may, by notification in the official Gazette, specify; S.2(35) "taxable activity" means any activity which is carried on by any person, whethe r or not for a pecuniary profit, and involves in whole or in part, the supply of goods to any other .person, whether for any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture.
S.2(39) "taxable goods" means all goods other than those which have been exempted under section 13.
S.2(41) "taxable supply" means a supply of taxable goods made in Pakistan other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4. "
S.13. Exemption.- (1) Notwithstanding the provisions of section 3, supply of goods or import of goods specified in the Sixth Schedule shall, subject to such conditions as may be specified by the Federal Government, be exempt from tax under this Act.
(2) Notwithstanding the provisions of sub- section (1)--
(a) the Board with the approval of the Federal Minister-in-charge may, pursuant to the approval of the Economic Coordination Committee of Cabinet, whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national good security in emergency situations, protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices, removal of anomalies in taxes, development of backward areas, implementation of bilateral and multila teral agreements and matters relating to international financial institutions or foreign government-owned financial institutions, by notification in the official Gazette, exempt any taxable supplies made or import or supply of any goods or class of subject to the conditions and limitations specified therein; and
(3) The exemption from tax chargeable under sub-section (2) may be allowed from any previous date specified in the notification issued under clause (a).
(4)...
(5)...
(6) The Board shall place before the National Assembly all notifications issued under this section in a financial year .
(7) Any notification issued under sub-section (2) after the 1st July, 2015, shall, if not earlier rescinded, stand rescinded on the expiry of the financial year in which it was issued.
Provided that all such notifications, except those earlier rescinded, shall be deemed to have been in force with effect from 1st July , 2016 and shall continue to be in force till 30 June, 2018, if not earlier rescinded.
Provided further that all notifications issued on or after the first day of 1st July, 2016 and placed before the National Assembly as required under sub-section (6) shall continue to be in force till thirtieth day of June, 2018, if not earlier rescinded by the Federal Government or the National Assembly .
[THE SIXTH SCHEDUEL] [See Section 13 (1)]th "21. Newspapers, books, journals and periodicals excluding directions of all sorts."
11. A bare reading of the above provisions would show that GST under Section 3(1) (a) would be chargeable when:-
(i) a registered person;
(ii) makes taxable supplies; and
(iii) in the course or in furtherance of i.e. a taxable activity.
Therefore, to attract the applicability of the charging section all the aforesaid ingredients must exists in a transaction rendering the person liable to pay the GST. Indeed the most striking feature of the transaction attracting the charging section is the "taxable supply" which should be in furtherance of "taxable activity". Taxable supply as defined in Section 2(41) of the Act of 1990 means a supply of taxable goods by an importer, manufacture, whole seller, distributor or retailer other than the supply of goods which is exempt under Section 13 and includes the supply of goods chargeable to tax at the rate of zero percent under section. Therefore, a manufacturer after manufacturing of goods, if making supply of the goods which are exempt under section 13 of Act of 1990 from payment of GST then that manufacturer is not required to pay GST at the time of supplying the goods as the said exemption will take the said supply outside the regime of "taxable supply" which is condition precedent for invoking the charging section i:e section 3 of the Act of 1990 as evident from the clear words of section 2 (41) of the Act of 1990. Admittedly, in the present case when the petitioner had printed the textbooks and pursuant to the agreement were supplying those textbooks to KPTBB, the said supply could constitute a taxable activity, however, it could not be termed as a taxable supply as defined in Section 2(41) of the Act of 1990.
12. Moving on to foremost question in the matter , as to whether against the said supply KPTBB is required to withhold GST from the petitioner . Unlike , the Income Tax Ordinance, 2001, the Act of 1990 per se does not envisage/cast responsibility on the recipient of supply/services to deduct/withhold tax at the time of making payment to the person who is liable to pay the GST. The concept of withholding agent and responsibility to withhold the GST at the time of making payment has been introduced under the Rules. Rule 2 of the Rules envisages for the responsibility of a withholding agent to withhold GST , the said Rule read as under:- "2. Responsibility of a withholding agent.--(1) The withholding agent, intending to make purchases of taxable goods, shall indicate in an advertisement or notice for this purpose that the sale tax to the extent as provided in these rules shall be deducted from the payment to be made to the supplier.
(2) A withholding agent, other than a recipient of advertisement services, shall deduct an amount equal to one fifth of the total GST shown in the sales invoice issued by a registered person and make payment of the balance amount to him.
13. A bare reading of Rule 2 would show that withholding agent is responsible only to deduct GST from the invoices of payee when:- i) the withholding agent making the purchases of taxable goods; ii) at the time of inviting bids, it has disclosed in the bid/advertisement that the sale tax to the extent as provided in these rules shall be deducted.
In the impugned transaction none of the requirement of Rule 2 ibid are attracted. It needs no reiteration that the taxable goods as defined in the Act of 1990 means "all goods other than those which have been exempted under section 13".
Therefore, in view of the explicit provision of the Act of 1990 and the Rules, the provision of the Rule 2 ibid would be applicable only when the withholding agent is making payment against taxable goods. Since the supply of books were exempt from the levy of GST under Section 13 read with Entry No.21 in the Sixth Schedule, therefore the KPTBB has no responsibility to withhold GST from the payment to be made to the petitioner regarding the impugned supply as the books are not taxable goods.
14. The matter can be viewed from another angle. If we allow the KPTBB to withhold the GST from the invoices of the printing companies then obviously the printing companies would add the GST in their bills, therefore, despite the fact that the supply of books are exempted from payment of GST, the KPTBB would obviously add the amount of GST in the price/costs of books and end consumers (confessedly , all are the students for whose benefits the books have been exempted from levy of GST) would pay the amount of GST on purchasing the text books, thus the very object of the exemption will be frustrated and nullified.
15. Now coming to the view which we had expressed while answering the GST Reference No 11-P/2013 vide our judgment dated 13-05-2013. In the said judgment we had mainly focused on the meaning and concept of printing. We had rightly held in our judgment that in view of explicit definition of manufacturing as provided in section 2 (16) (b) the process of printing and publication falls within the definition of manufacturing and the process of a manufacturing is liable to the incident of GST. However in the said judgment we did not render findings on the exemption of GST on the transaction which does not constitute a taxable supply and the goods involved in the supply are not taxable goods.
Indeed, our attention was not drawn to the basic ingredient of Rule 2 ibid i.e that the responsibility of withholding agent will trigger only when it is making payment against taxable goods.
16. Lastly adverting to the contentions of the learned counsel for the Petitioners that in all circumstances, the Petitioners have the right to adjust the input tax against the output tax. We are not in consonance with the argument of learned Counsel for petitioner that under Section 7 of the Act of 1990, the petitioner is entitled to claim input tax paid for the purpose of taxable supplies from the output tax. Section 7 of the GST Act provides that for the purposes of determining tax liability in respect of 'taxable supplies', a registered person shall be entitled to adjust input tax paid during the tax period. Such concession is clearly available only when a registered person makes 'taxable supplies' and is not available where the supplies are totally exempt from the GST liability. This mandate of the law is further affirmed in section 8(1)(a) of the Act, which provides that notwithstanding anything contained in any other provision of the Act, a registered person shall not be entitled to claim input tax paid on goods that are used in the making of supplies which have been exempted from the GST liability under the provisions of Section 13 of the Act of 1990. This clearly means that adjustment of input tax only can be claimed in a situation where the goods that have been manufactured or produced fall within the definition of 'taxable supplies'. The whole object behind the provision of Section 8(1)(a) of Act of 1990 seems to be that where at any stage, GST has been legitimately paid then adjustment of input tax cannot be claimed where such goods were used in the manufacture of 'exempt supplies'. Thus, where a registered person is exempted from the liability of GST on its supplies, it does not mean that the tax that was paid on the purchase of raw material used in the making of such supplies would be liable to be adjusted. In view of the legal position as emanating from the plain reading of the provisions of Sections 7 and 8 of the GST Act, 1990, it is evident that there is no promise by the Legislature that the GST paid on the goods used in the manufacturing of 'exempt supplies' would be liable to be refunded. Reliance placed on the cases of Messrs Mayfair Spinning Mills Ltd., Lahore v. Customs, Excise and GST Appellate Tribunal, Lahore etc. (PTCL 2002 CL 115 and Coca Cola BEVERAGES PAKISTAN LIMITED VERSUS CUSTOMS, EXCISE AND SALES TAX APPELLAT TRIBUNAL 2017 PTD 2380.
17. In view of what has been discussed herein above, we hold that:- I. KPTBB is not required to withhold GST against payment which it makes on receipt/supply of books in view of section 13 of the Act of 1990.
II. KPTBB shall make payment to the Petitioner without withholding GST .
III. Printing of books falls within the defin ition of manufacturing as provided in the Act of 1990, therefore, is not service rendered under the Act of 1990.
IV. KPTBB may file an application to the FBR for refund of GST already collected / recovered from it.
18. Accordingly , both these petitions stand disposed of in the above terms.