CH. SHAHID IQBAL DHILLON (JUDICIAL MEMBER).--- The titled sales tax appeal has been preferred by the registered person under section 46 of the Sales Tax Act, 1990 calling in question the impugned Order-in-Appeal No.200/2017 dated 09-05-2017 passed by the learned Commissioner Inland Revenue (Appeals), Faisalabad pertaining to different tax periods have agitated the respective grounds for the tax periods as set forth in the memo of grounds of appeal.
2. Briefly stated facts of the case are that the registered person is engaged in the business acting as distributor of the principal companies. On examination of sales tax returns the adjudicating officer show cause bearing C. No.2017 dated 23-05-2016; for the different tax periods reveals that you made taxable supplies to the unregistered person but 1% or 2% further tax has not been deposited by you in terms of section 3(1A) of the Sales Tax Act, 1990. Therefore, you have short paid an amount of Rs.1,599,929/- and contravened provision of section 3(1A) of the Act. On the basis of above, you are charged with the violation of provision of sections 2(37), 3(1A), 6, 22, 23, 25, 25, 26 and 73 of the Sales Tax Act read with Chapter X of the Special Procedure Rules, 2007 notified vide S.R.O. No.480(I)/2007 dated 09-06-2007. The above position shows that the registered person has nothing to offer in defence, hence, charges levelled in the show-cause notice is held established and recoverable under sections 11(2) of the Sales Tax Act, 1990.
3. Feeling aggrieved from the Order-in-Original appellant filed appeal before the Commissioner Inland Revenue (Appeals), RTO, Faisalabad, whereby the appeal instituted on behalf of the appellant was disposed-off with the following words; "This being position, the recovery created on this score is confirmed and impugned order being passed on facts and as per law is allowed to remain in field". Being dissatisfied with the treatment meted out by the first appellate authority; hence this appeal has been preferred before the Appellate Tribunal by the appellant.
4. Learned Council of the appellant has contended that the treatment meted out by both the authorities below is erroneous and without application of judicial mind and it is liable to be annulled. He has further contended that the unit of the registered person deals with the products falls under third and sixth schedule are not required to pay any further tax as per section 3(2) of the Sales Tax Act which starts with "notwithstanding" being non-obstante clause. Also, all the proceedings under section 11(2) may please be declared illegal as per the decision of higher appellate forums. On the contrary the learned DR appearing on behalf of the department has supported the impugned order passed by the adjudicating authority that the appellant is not paying the further tax on the taxable items sold to unregistered persons.
5. We have heard the arguments put forth by the rival parties of both the sides and have carefully gone through the available record.
6. The title of Third Schedule cover as per provision of clause (a) of subsection (2) of section 3 of the Sales Tax Act. For sake of facility section 3 of the Sales Tax Act is reproduced as under:
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.
5[(1A) Subject to the provision of subsection (6) of section 8 or any notification issued thereunder, where taxable supplies are made to a person who has not obtained registration number, there shall be charged, levied and paid a further tax at the rate of 6[-two] percent of the value. In addition to the rate specified in subsections (1), (1B), (2), (5), 7[(6) and 4] provided that the Federal Government may, by notification in the official Gazette, specify the taxable supplies in respect of which the further tax shall not be charged, levied and paid.].
8(IB) The Board may, by notification in the Official Gazette, in lieu of levying and collecting tax under subsection (1) on taxable supplies, levy and collect tax ---
(a) On the production capacity of plants, machinery, undertaking, establishments or installation producing on manufacturing such goods; or
(b) On fixed basis, as it may deem fit, from any person who is in a position to collect such tax due to the nature of the business.] 9(2)'Notwithstanding the provisions of subsection (I): ---
(a) taxable supplies specified in the Third Schedule shall be charged to tax at the rate of 1(seventeen] per cent of the retail price 10[or in case such supplies are also specified in the Eighth Schedule, at the rates specified therein and the retail price thereof,] along with the amount of sales tax shall be legibly, prominently and indelibly printed or embossed by the manufacturer on each article, packet, container, package, cover or label, as the case may be [:] 12[Provided that the Federal Government, may, by notification in the official Gazette, exclude any taxable supply from the said Schedule or include any taxable supply therein; "
The learned counsel contended that the distributor at the relevant time, was, however, exempt from the payment of sales tax the company, therefore, was not liable to pay tax on the value added to the products on account of distribution at the sale point. Reliance was placed in a case reported as 2002 PTD 942 (Peshawar High Court); wherein their Lordships have held that. "that the sales tax becomes payable at the time the manufacture goods leave the factory premises. Thus, the Company was liable to pay sales tax when its products left the factory premises for further distribution at the sale point. Obviously, the sales tax would be leviable on the value of supplies the company would receive when it delivers the goods."
As per impugned show-cause notice your good office reproduced provision of section 7(2)(i) of the Sales Tax Act, 1990. A perusal of section 7 of the Sales Tax Act, shows that the registered person shall be entitled to deduct input tax paid for the purposes of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of tax period.
If the word purposes are considered in ordinary plain meaning, it would appear that the intention of legislature, apparent from the language is that if any input tax is paid with the intention that the goods on which such input tax is paid shall be used in the end products or taxable supplies made or to be made, then the registered person shall entitle to deduct the same from the output tax.
Now, we came to the provisions contained in section 8 of the Sales Tax Act, which starts with the non-obstante clause, meaning thereby, that even if registered person is entitled for deduction of input tax, he shall loose entitlement if the goods on which the input tax has been paid, are excluded under substantive provisions of section 8 or under the notification issued by the Federal Government, in conformity with the provisions in section 8 of the Sales Tax Act.
The provisions of sections 7 and 8 of the Sales Tax Act are not charging provisions and that these are machinery provisions to crystallize the liability to pay the tax as contemplated in subsection (3) of section 3 of the Act. Sections 7 and 8 are not the charging sections and these pertains to the domain of playability. Reliance was place in a case reported as PTCL 2002 CL 115 (Lahore High Court).
8 On the issue of non-obstante clause and further tax, the learned counsel relied upon the following citations as under:--
(I) 2000 PTD 254 (Karachi High Court); their Lordships have held as under: "Non-obstante clause---Function---Non obstante clause overrides other or the earlier provisions and, therefore, must be read in the context in which it would operate---Expression "notwithstanding any judgment of any Court" in a provision-Impact---Expression would save act, order, proceedings or things done validly and the benefits thereof would not extend to save acts done, orders made or proceedings taken without jurisdiction, coram non judice or mala fide-- Expression "notwithstanding" and "non-obstante" clause in a provisionImpaa--When a provision of the statute starts with the expression "notwithstanding" or with "non-obstante" clause then the effect thereof would be that such provision would have to be given preference and that would override any other provision or the section of the statute---Other provision or the section of the statute inconsistent with the provision containing the "non-obstante" clause would be subjugated and preference would be given to the provision or the section containing the non- obstante clause--- Expression "notwithstanding" and "non-obstante" clause in a provision---Impact---If two provision of a statute are no consistent or are in conflict with each other then the provision of the section starting with the expression "notwithstanding" or with "non-obstante" clause would have preference and would override the provisions or the sections of the statute dealing with the same subject-matter---Inconsistent provision in a statute-- Effect---If there are two provisions or sections in a statute which are inconsistent or in conflict with each other then the Court is required to Interpret the two provisions of the statute in a harmonious manner and both the provisions should be made to work side by side and one of the two provisions or the sections is to be rendered surplus or redundant---If two provisions of statute are not consistent or are in conflict with each other, the provisions of the section starting with expression "notwithstanding" or with "non-obstante" clause would have preference and would override the provisions of the sections of the statute dealing with the same subject-matter."
(II) 2016 PTD 648 (Sindh High Court); his Lordship have held as under: ......Once the mechanism has been prescribed by the Federal Government by issuance of a Notification in terms of various provisions of the Act, including Section 13(2)(a) of the Act ibid the question of payment of any additional tax in terms of Section 3(1A) could only be invoked in respect of goods which are being charged Sales Tax under Section 3(1) of the Sales Tax Act, 1990 at the rare specified therein at ad-volorem basis which is presently @ 17%. Once the mode and manner and the rate of Sales Tax has been altered, modified or fixed by the Federal Government either through subsection (2) (b) and (6) of section 3, read with Section 13, no further tax can be demanded once the liability of Sales Tax is discharged on the basis of a special procedure as contemplated under S.R.O. No.460/2013.
8. In view of herein above facts and circumstances of the instant case we are of the view that the petitioner has discharged its liability of sales tax at the import stage by complying with provisions of S.R.O. No.460(1)/2013 which has been issued by the Federal Government in terms of Special Provision for collection of sales tax in a manner and mode and at the rate, other than provided/s 3(1) of the Act, 1990, including the provision of section 13 of the Sales Tax Act, 1990, Vwhich has an overriding effect viz a viz chargeability of the tax, is not required to pay any additional tax in terms of Section 3(1A) of the Act. Accordingly, we hold that impugned show-cause notice issued in terms of section 11(2) andof the Act for payment of additional tax has been issued without any lawful authority and jurisdiction and is hereby quashed.
(III) PTCL 2017 CL. 178 (Lahore High Court); his Lordship have held as under:-- "A non-obstante clause is a legislative tool employed to give overriding effect to certain provisions over some contrary provisions that are to be found in the same enactment or in a different enactment in order to avoid the operation and effect of all contrary provisions. The Honourable Supreme Court in Messrs EFU General. Insurance Company Limited v. The Federation of Pakistan PTCL 1997 CL. 478 explained the scope of such clause by stating as under:-- "Thus a non-obstante clause is usually used a provision to indicate that the provision should prevail despite anything to the contrary in the provision mentioned in non-abstante, clause. In case there is any inconsistency between the non-obstante and other another provision, one of the objects of such clause is to indicate that it is the non-obstante clause which would prevail over the other clause."
9. On the issue of further tax, reliance was also made on a judgment of Honourable High Court Lahore in a case reported as 2015 PTD 175 (Lahore High Court) titled as Messrs Zia Brothers v.
Federation of Pakistan and others his Lordship have held that: "10. For the reasons, it is declared that Section 3(1A) of the Act has no applicability to the case of the petitioners who enjoy exemption under the Act and are not making any "taxable supplies" in terms of section 2(41) of the Act.
11. This Court is also aware that a duty cannot be cast upon a supplier to verify the antecedents of a buyer or confirm whether the buyer enjoys an exemption under the Act before making a. transaction. It is, therefore, pointed out that the petitioners have paid "further tax" during the pendency of these petitions and claim refund/adjustment of the said amount. After the above declaration that further tax is not applicable to the case of the petitioners who enjoy an exemption under the Act, the procedure and functionality of this principle can best be left to the FBR who shall devise a mechanism to provide relief to the Petitioner who do not fall within the ambit of section 3(1A) of the Act."
10. The registered person did not violate any provisions of sections 11(2) of the Sales Tax Act, 1990.
For sake of facility section 11(2) is reproduced as under: "(2) Where a person has not paid the tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible under this Act for reasons other than those specified in subsection (1), an officer of Inland Revenue shall, after a notice to show cause to such person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with sections 33 and 34."
Provision of section 11 stipulate different conditions for issuance of notice under section 11 of the Act; firstly, the registered person fails to file the return; secondly the registered person has not paid the tax due supplies or made short payment or has claimed input tax credit or refund which is inadmissible were levelled in the subject show-cause notice. In absence of any detail or proper allegation regarding the above situations if assessment is made subsection (2) of section 11 and there are reasons to believe that any of the aforementioned defects exists which is misconceived; as under the law, the adjudicating authority is required to apply his mind cautiously and to indicate the registered person under section 11(2) under what reason; its assessment of tax is sought; as assessm ent of tax in a case to some extents a penal action; so the registered person be prepared to meet the consequences of an assessment of tax. Further, no revenue loss is involved particularly when the supplier already collects and deposited the output tax to national exchequer. Reliance was placed in a case reported as 2017 PTD (Trib.) 846 wherein it has been held that:- "5. Suffice it to say, liability to pay sales tax is on the supplier under section 3(3)(a) of the Act which is independent to the provisions of section 73 of the Act as the supplier has to make payment of sales tax at time of filing of sales tax return for a tax period end sales tax has to be paid been in cases of credit transactions as well. It is established beyond any shadow of , doubt that deposit of sales tax is independent to that payment under section 73 of the Act hence, in cases of delayed payments, no revenue loss is involved particularly when the supplier has already paid output tax to the government therefore, demanding refunded amount of input tax back from the buyer despite having it deposited by the supplier in the national exchequer would definitely amount to double taxation not permissible under any law of land. In nutshell, it is acknowledged that refund of input tax is a substantive right of assessee which cannot be taken away or withheld on mere some technicalities and procedural lapses whatsoever."
11. The learned counsel also contended that the Sales Tax Act, 1990 the provide the adjudicating authorities to check the declared result for the current tax period and restricted them to only one month and not a year, therefore, if any discrepancy was appearing in any declared results of the registered, person in any tax period only to that extent the adjudicating authority was required to amend the same. As per section 11 only a tax period consisting one month can be amended whereas for rest of the pervious period the department can conduct audit proceedings under section 25 of the Act.
Reliance was also placed in a case reported as 2016 PTD 445 (Trib.); wherein the honourable ATIR have held that:-- "6. Cumulative reading of the above reveals that as per Sales Tax Act, the tax period consists of one month and every taxpayer/registered person is required to file a return for a tax period on the 15th of next month of the tax period and in case the department finds that any registered person fails to file return or short levied tax or he has been refunded erroneously in that eventuality, can assess the correct amount of tax whereas in case of previous periods the department is empowered to conduct audit on the basis of record once in a year.
7. It can also be gathered from above that it is only the period of one month in which if tax is not paid due to non-filing of return or if return filed, shod levied of tax can be subject to assessment and not for a year i.e. 12 tax periods. The law does not empower the tax authorities to pass an order for 12 tax periods in the garb of monitoring instead of one month. However, if the department was of the view that registered person has paid short tax, consisting of more than one tax period, the law gives power to the department to conduct audit for the previous tax periods and levy correct tax evaded by the registered person.
8. The monitoring was conducted under section 40B of the Act on the instruction of Board which pertains to the period July, 2011. The department should have watched and observed the return filed for the above said period and if the declaration of the registered person was not in accordance with the data collected by the monitoring team then only the return for the said period could be said to be understated by the registered person and the department could have initiated the proceedings in accordance with law. The law does not empower the revenue/ department to initiate proceedings on the basis of monitoring conducted during the tax period to reopen and proceed for the previous tax period for the reason that firstly the information was only available for the tax period in which the monitoring was conducted and secondly the monitoring was not relevant to the past and closed tax periods and thus data collected could not be a tool for the proceedings of the previous tax periods. Since the department has got no exact and definite figures of supplies for the previous periods, therefore, on the basis of information of any tax period to which data relates the previous tax periods could not be proceeded. Therefore, in our considered view the department should have looked into the return file for the tax periods in which monitoring was conducted and if the declared supplies of the taxpayer were not in accordance with the supplies made, then the department was at liberty to initiate proceedings for that tax period only."
12. He further argued that the specific notice bearing C.No.2017 dated 23-05-2016 also defective.
The show-cause notice was not a casual correspondence or a tool or license to commence a roving inquiry into affairs of the registered person based on speculations but was a fundamental document that carried definite legal and factual position of the revenue against the registered person.
Reliance was also placed in a case reported as 2013 PTD 2344 (Trib); wherein the honourable ATIR have held that: "5. We have examined the available record and considered rival arguments. First point we are to take up is the matter of issuance of show-cause notice by ACIR. It is, now, settled law that any proceedings taken without issuing proper show-cause notice would be illegal. According to Guide to Central Excise Laws and Practice by Arvind P. Datar & B.N. Gururaj, Sixth Edition, Volume-I, an authoritative commentary on the Indian Central Excise Act, 1944, pp. 544 and 830, which has been referred by learned counsel of the appellant the show-cause notice must satisfy following basic requirements:--
(i) The notice must be properly served on the concerned person and must give sufficient time to enable him to prepare his case.
(ii) Notice should be adequate and not merely repeat the statutory language without giving facts or other particulars;
(iii) The notice must require the party to show cause to the proper officer why he should not pay a certain stated amount;
(iv) The grounds in the show-cause notice should be clear specific and unambiguous;
(v) Notice should be issued on the subjective satisfaction of the concerned officer. A notice issued in pursuance of advice is illegal and liable to be quashed;
(vi) The basic principle is that a show cause must be real show cause, keeping an open mind with regard to the subject-matter of the inquiry proposed and if the show-cause notice bears out a foreclosed or prejudged mind that would violate the principle of natural justice;
(vii) Where the notice merely states that "it appear" that the assessee has violated some conditions and duty demanded, without asking the assessee to show caus'e, it amounts to violation of natural justice. Demand set aside,'
(viii) The amount must be stated and manifestly specified in the notice itself;
(ix) The amount determined by the authority as payable shall not exceed the amount specified in the show-cause notice; and
(x) Such amount which the party is ordered to pay must be stated and manifestly specified in the order without relegating the party to conjuncture and calculations for ascertainment of the amount ordered to be paid. we have noted that the show-cause notice cited supra lacks basic requirements as has been referred above in respect of show-cause notice as there is no mention of specific allegations in relevant tax periods, quantum of default, application of specific statute (whether Federal Excise Act, 2005 or Sales Tax Act, 1990). The perusal of show-cause notice reveals that ACIR has merely reproduced the observation of the Internal Audit Inland Revenue and not bothered to translate the audit observation into a sustainable show-cause notice by incorporating the required necessary details; Under such a situation the contention of the learned AR have force that the show-cause notice is liable to set-aside."
13. For the reasons recorded above the order-in-original sustainable and the CIR(A) has erred in law to uphold the same. Thus, the impugned orders of both the authorities below are illegal and void ab initio on facts as well as on legal issues are hereby set aside. This being so appeal filed by the registered person is accepted as prayed for.