MUHAMMAD SAJID MEHMOOD SETHI, J.- This consolidated judgment shall decide instant Reference Application, along with following connected cases, as common questions of law and facts are involved in these cases:-
1. STR No.283 of 2015 titled Commissioner Inland Revenue, Faisalabad v. M/s. Al-Mustaqeem Trading Corporation, Sammundari & another .
2. STR No.65 of 2016 titled Commissioner Inland Revenue, Faisalabad v. M/s. Farooq Faiz Textile Mills (Pvt) Ltd., Faisalabad .
3. STR No.66 of 2016 titled Commissioner Inland Revenue, Gujranwala v. M/s. Khawar azir Rolling Works, Gujranwala .
4. STR No.81 of 2016 titled Commissioner Inland Revenue, Gujranwala v . M/s. N.S. Metal Casting, Gujranwala .
5. STR No.86 of 2016 titled Commissioner Inland Revenue, Gujranwala v . M/s. Hamza Plastic, Gujranwala .
6. STR No.103 of 2016 titled Commissioner Inland Revenue, Gujranwala v . Arshad Stainless Steel, Gujranwala .
7. STR No.158 of 2016 titled Commissioner Inland Revenue, Gujranwala v . M/s. Saqib Rolling Works, Gujranwala .
8. STR No.159 of 2016 titled Commissioner Inland Revenue, Gujranwala v. M/s. Mohsin Rolling Works, Gujranwala .
9. STR No.206 of 2016 titled Commissioner Inland Revenue, Faisalabad v . M/s. Deer T ea, Faisalabad .
10. STR No.237 of 2016 titled Commissioner Inland Revenue, Gujranw ala v. M/s. Golden Sanitary Ceramics, Gujranwala .
11. STR No.269 of 2016 titled Commissioner Inland Revenue, Gujranwala v. M/s. Waqas Steel Furnace, Gujranwala .
12. STR No.285 of 2016 titled Commissioner Inland Revenue, Gujranw ala v. M/s. Nouman Stainless Steel, Gujranwala .
13. STR No.31 1 of 2016 titled Commissioner Inland Revenue, Gujranwala v . M/s. RBN Industries, Gujranwala .
14. STR No.312 of 2016 titled Commissioner Inland Revenue, Gujranwala v. M/s. Kirn Stainless Steel, Gujranwala .
15. STR No.313 of 2016 titled Commissioner Inland Revenue, Gujranwala v. M/s. Sialkot Sweets & Bakers, Gujranwala .
16. STR No.108243 of 2017 titled Commissioner Inland Revenue, Gujranw ala v. M/s. A.Z. Stainless Steel, Gujranwala .
17. STR No.159916 of 2018 titled Commissioner Inland Revenue, Gujranwala v. M/s. Spell & Rabia Plastic Industry , Gujranwala .
18. STR No.2476 of 2019 titled Commissioner Inland Revenue, Sargod ha v. M/s. Imran Traders, Mandi Bahauddin .
19. W.P.No.26720 of 2013 titled Muhammad Farooq Ashraf v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others .
20. W.P.No.20925 of 2014 titled MA Engineering Works, Sheikhupura v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others.
21. W.P.No.21641 of 2014 titled Muhammad Sarwar Khan v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others .
22. W.P.No.21715 of 2014 titled M/s. Maqbool & Sons Furnace (Pvt.) Ltd., Gujranwala v.Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others .
23. W.P.No.22371 of 2014 titled MA Engineering Works, Sheikhupura v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others.
24. W.P.No.32952 of 2014 titled M/s. Jeevay Madina Steel Furnace v. Federation of Pakistan, Ministry of Finance, Economic Affairs, Statistics & Revenue, Revenue Division, Islamabad through its Secretary & others .
25. W.P.No.33855 of 2014 titled Sheikh Ali Roheel v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others .
26. W.P.No.33871 of 2014 titled Gold Star Steel Industries v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others .
27. W.P.No.34362 of 2014 titled Jamil Ahmed Butt v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others .
28. W.P.No.34537 of 2014 titled Razi ud Din Razi v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others .
29. W.P.No.82 of 2015 titled Aftab Ahmed Butt v. Federation of Pakistan through Secretary (Revenue Division), FBR, Islamabad & others .
30. W.P.No.4024 of 2015 titled M/s. Faisal PVC Pipe Factory v. Federation of Pakistan, Ministry of Finance, Economic Affairs, Statistics & Revenue, Revenue Division, Islamabad through its Secretary & others .
31. W.P.No.6809 of 2015 titled M/s. Amjad Plastic Dana v. Federation of Pakistan, Ministry of Finance, Economic Affairs, Statistics & Revenue, Revenue Division, Islamabad through its Secretary & others .
32. W.P.No.7392 of 2015 titled M/s. First Premium Plastic Industry v. Federation of Pakistan, Ministry of Finance, Economic Affairs, Statistics & Revenue, Revenue Division, Islamabad through its Secretary & others .
33. W.P.No.7656 of 2015 titled Ali Hassan Tahir v. Federation of Pakistan, through Secretary (Revenue Division), FBR, Islamabad & others .
34. W.P.No.18278 of 2015 titled Ali Hassan Tahir v. Federation of Pakistan, through Secretary (Revenue Division), FBR, Islamabad & others .
35. W.P.No.10269 of 2016 titled M/s. Ismail Garments v. Federation of Pakistan, through Secretary Revenue Division, FBR House, Islamabad & others .
2. Through instant Reference Application under section 47 of the Sales Tax Act, 1990 ("the Act of 1990" ), following questions of law, asserted to have arisen out of impugned order dated 16.11.2015, passed by learned Appellate Tribunal Inland Revenue Lahore Bench, Lahore ("Appellate Tribunal") , have been proposed for our opinion :-
(i) "Whether on the facts and in the circumstances of the case, the decision of the learned ATIR is consistent with the provisions of Sections 2(25), 3, 6, 14, 22, 23 & 26 of the Sales Tax Act 1990 read with Rule 4 of Chapter 1 of SRO 555(1)/2006 dated 05.06.2006 of Sales Tax Rules 2006.
(ii) Whether under the facts and circumstances of the case, the learned ATIR was justified to set aside the orders passed by both the authorities below holding that the Order-in-Original was finalized without registration or compulsory registration, ignoring that a person liable to be registered is also included in the definition of the registered person under section 2(25) of the Sales Tax Act, 1990."
In the connected Reference Applications, almost similar questions have been pressed and argued for our opinion.
In connected constitutional petitions, taxpayers are aggrieved of proceedings / orders passed by the applicant department to recover sales tax for the tax period prior to their sales tax registration and in some petitions recovery of sales tax through electricity bills has been assailed.
3. Brief facts of instant Reference Application are that it transpired to Inland Revenue Audit Officer, from scrutiny of electricity bills of respondent-taxpayer for years 2010, 2011 & 2012, that the taxpayer was liable to be registered in terms of Section 14 of the Act of 1990, as its utility bills were above the threshold of Rs.700,000/-. A show cause notice was issued to respondent taxpayer, which culminated in passing of Order-in - Original dated 27.05.2014, whereby respondent taxpayer was required to pay sales tax along with default surcharge. Feeling aggrieved, respondent taxpayer assailed said order in appeal before Commissioner Inland Revenue (Appeals), which was dismissed vide order dated 05.01.2015. Feeling dissatisfied, respondent taxpayer filed second appeal before the Appellate Tribunal, whereby orders passed by fora below were set-aside and appeal was accepted vide order dated 16.11.2015. Hence, instant Reference Application.
4. Learned Legal Advisors for applicant department along with Dr. Ishtiaq Ahmad Khan, Commissioner Inland Revenue, Corporate Regional Tax Office, Lahore on Court' s call submit that the taxpayers are attempting to abuse the process of law in order to evade their statutory obligation to pay sales tax in terms of the Act of 1990 and Sales Tax Rules, 2006 ("Rules of 2006") . They add that taxpayers are obliged to comply with all the provisions of the Act of 1990 and Rules of 2006, and applicant department is not debarred from taking legal and penal action to recover the sales tax on taxable supplies made by respondent-taxpayers. They argue that sales tax can be recovered from a person who is liable to be registered under the Act of 1990 but has not been registered. They have referred to M/s. Mahalaxmi Cotton Ginning Pressing and Oil Industries, Kolhapur v. The State of Maharashtra & Ors [2012] 51 VST 1 (Bom) , Messrs Khan and Co. Manz Kali, Kowar Mang, Bisham v. Deputy Commissioner -IR (Audit-IX), Zone-III, R.T.O., Peshawar and another (2015 PTD 796) and Messrs Amina Z. Beauty Salon through Managing Member v . Federation of Pakistan through Secretary General and 3 others (2016 PTD 654 ).
5. Learned counsel for the respondent taxpayers submit that the taxpayers could not be charged to tax before allocation of the Sales Tax Registration Number . They add that if it was found by applicant department that respondent taxpayers were required to be registered, the competent authority was obliged under Rule 6 of the Rules of 2006 to make compulsory registration of the taxpayers. They argue that respondent taxpayers were required to comply with all the provisions of the Act of 1990 and Rules of 2006 from the date of compulsory registration and in case of failure, applicant department was vested with the power to issue notice under Section 25 of the Act of 1990. They further submit that under the provisions of the Act of 1990 and Rules of 2006, only registered person, having sales tax numb er, ID, Pin Code and password, can file sales tax returns. They maintain that applicant department raised the tax demand without observing the principles of natural justice and taxpayers have been penalized without fixing any liability . In the end, they submit that, impugned actions of applicant department are illegal, void, of no legal effect and ultra vires to the provisions of the Act of 1990 and Rules of 2006.
In this regard, they have placed reliance upon Syed Muhammad Haider Zaidi and others v. Abdul Hafeez and others (1991 SCMR 1699 ), Messrs Khan and Co. supra and Messrs Amina Z. Beauty Salon supra.
6. We have heard the arguments of learned counsel for the parties and perused the record with their assistance.
7. The case of the applicant department is that the decision of the learned ATIR is not consistent with the provisions of Sections 2(25), 3, 6, 14, 22, 23 & 26 of the Act of 1990 read with Rule 4 of the Rules of 2006. Section 2(25) of the Act of 1990 defines the term "registered person" as under:-
2. Definitions. In this Act, unless there is anything repugnant in the subject or context.
(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 supplied] Section 3 of the Act of 1990 is the charging provision which imposes the charge / tax on a registered person, which reads 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 ."[Emphasis supplied] Section 2(25) and Section 3, reproduce d above, manifestly clear intention of the legislature that the definition clause as well as charging provision is to be read in harmony with other provision s of the statute, and the levy of tax is dependent upon other provisions of the Act of 1990, therefore, it is necessary to read these provisions in the perspective of overall scheme of the Act of 1990.
8. Under the Act of 1990, the liability to collect and pay tax by a registered person arises at two stages. The tax paid at the time of purchase / acquisition of taxable supplies by a registered perso n is referred to as "input tax" as defined under Section 2(14) of the Act. Upon utilization of the taxable input, the registered person makes taxable supplies, the tax paid thereon is referred to as the "output tax" as defined unde r Section 2(20) of the Act. The liability to taxation of a registered person is determined, for a tax period, under Section 7 of the Act which stipulates that, subject to the bar contained under Section 8 of the Act, a registered person is entitled to deduct the input tax, that has already been paid, from the output tax. The net amount arising thereby is paid, along with the monthly return, in the treasury as per Section 6 of the Act. Section 6 of the Act of 1990 provides time and manner of payment of tax in respect of taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him; and goods imported into Pakistan.
9. Section 8-A of the Act stipulates that the registered persons in supply chain are jointly and severally liable for payment of unpaid tax. Section 14 of the Act of 1990 read with Rule 4 of the Rules of 2006 requires registration of every person engaged in making taxable supplies in Pakistan in the course or furtherance of any taxable activity carried on by him, falling in any of the categories mentioned in the said provision. Section 22 of the Act contains provisions as to maintenance of record by a registered person making taxable supplies. Section 23 relates to issuance of tax invoices, by a registered person at the time of supply of goods, containing the particulars mentioned therein. Section 25 empowers the department to have access to record and documents etc. of any person who is required to maintain any record or documents under the Act of 1990 or any other law. Section 26 prescribes mode and manner of furnishing returns by every registered person.
10. The term "tax invoice" has been defined in Section 2(40) of the Act of 1990, which states that tax invoice means a document required to be issued under Section 23. Under Section 23(1)(a)(b), a tax invoice should contain the name, address and registration number of the supplier and the recipient, the same is reproduced hereunder:- "23. Tax Invoices.(1) A registered person making a taxable supply shall issue a serially numbered tax invoice at the time of supply of goods containing the following particulars, namely:-
(a) name, address and registration number of the supplier;
(b) name, address and registration number of the recipient;"
Sub-section (2) of Section 23 provides that no person other than a registered person or a person paying retail tax can issue an invoice. The said sub-section (2) reads as under:- "(2) No person other than a registered person or a person paying retail tax shall issue an invoice under this section."
11. Section 26 of the Act of 1990 requires every registered person to furnish a true and correct return within the due date, thus, an unregistered person or a person liable to be registered cannot file its return as per the provisions of the Act of 1990, since no such mechanism / procedure has been provided for such a person to file its return and to collect tax from the recipient, without issuance of tax invoice. Section 38 of the Act of 1990 also uses the phrases registered person and person liable for registration separately for the persons in respect of whom the powers mentioned in the said provision can be exercised by authorised officers regardi ng access to premises, stocks, accounts and records.
12. Rule 5 of the Rules of 2006 read with Section 14 of the Act of 1990 provides that, before making any taxable supplies, a person required to be registered under the Act of 1990 has to apply for registration and the concerned office is required to proceed in accordance with procedure provided in the Rules of 2006. Rule 6 of the Rules of 2006 provides that where a person, required to be registered under the Act of 1990, did not apply for registration, Local Registration Office or any other office as may be authorized by the Federal Board of Revenue or the Commissioner concerned, after such inquiry as deemed appropriate, was satisfied that such person was required to be registered, it would issue notice to such person and, after receiving a written reply within time prescribed in notice and allowing him opportunity of being heard, pass an order whether or not such person was liable to be registered compulsorily. Under sub-rule (4) of Rule 6, reproduced below, a person registered compulsorily, is required to comply with all the provisions of the Act and rules made thereunder from the date of compulsory registration.
"6(4). A person registered compulsorily as aforesaid, is required to comply with all the provisions of the Act and rules made thereunder from the date of compulsory registration, and in case of failure to do so, the Collector of Sales Tax having jurisdiction may issue notice under section 25 of the Act for production of records or documents and appearance in person to assess the amount of sales tax payable under section 11 of the Act, and take any other action as required under the law against such person."[ Emphasis supplied]
13. Even otherwise, before declaring a person liable to be registered, the well-established principle of natural justice i.e. audi alteram partem i.e. no one should be condemned unheard, is to be observed. A notice was to be issued to the taxpayer confronting the material which in the opinion of applicant department was sufficient to bring it within the scope of liable to be registered. After receipt of reply and providing sufficient opportunity of hearing, a speaking order could be passed holding taxpayer liable to be registered and, after registration, demand could be raised by the applicant department. Need less to say that no order affecting the right of a party / person could be passed without affording opportunity of hearing. During the arguments, both the parties to the instant reference application and connected cases have relied on the judgment passed by one of us (Muhammad Sajid Mehmood Sethi, J.) in the case of Messrs Amina Z. Beauty Salon supra, while sitting as a single bench. In that case, after examining the various provisions of the Punjab Sales Tax on Services Act, 2012, which are in pari materia to the provisions of the Act of 1990, it was held that, for determining the fact whether a person is liable to be registered or not, a notice is required to be given and, thereafter said person is required to be compulsorily registered, and for determining its liability a show cause notice has to be served upon it. Judgment passed in the said case was upheld by the Hon'ble Apex Court dismissing the CPLA filed by the department on the point of limitation.
Relevant portion of the judgment passed in Messrs Amina Z. Beauty Salon supra is reproduced below for ready reference:- "8. Perusal of the provision reproduced above shows that even if the petitioner is considered a registered person within the contemplation of Punjab Sales Tax on Services Act, 2012, even then, under section 24 of the Act of 2012, on the basis of information acquired during an audit, inquiry, inspection or otherwise, if respondent No. 4 was of the opinion that the petitioner has not paid the tax due or has made short payment on taxable services he was required to issue show cause notice to the petitioner under subsection (2) of the Section 24 and, after hearing the petitioner, any liability was to be fixed upon it by the said respondent. The Authority has neither communicated any grounds for proceeding against the petitioner by issuing the mandatory show cause notice under subsection (2) nor sought any representation or provided an opportunity of hearing to the petitioner and without fulfilling all the requisite formalities for fixing liability of petitioner, simply proceeded to adopt coercive measures. The Authority should have followed the minimum requirement of the principles of natural justice i.e. issuance of notice to the petitioner. It is well settled proposition of law that taxing authorities cannot demand amount without issuing a show cause notice and providing opportunity of hearing and fixing liability in terms of the relevant provisions of law. Reliance is placed on Executive Engineer, Qadirabad Barrage Division, Qadirabad and others v. Ejaz Ahmad (2007 SCMR 1860), Habib Bank Limited v. Ghulam Mustafa Khairati (2008 SCMR 1516 ), Dr. Ashfaq Ahmad Khan v. Deputy Commissioner of Income Tax, Peshawar and others (2012 PTD 1329), Messrs Bissma Textile Mills supra, and Messrs Kind Traders supra. Learned counsel for the petitioner has rightly relied upon the judgment passed by this Court in the case of Messrs Bissma Textile Mills supra, in which it was held that a person cannot be burdened with liability merely on the basis of an audit report with which he has not been confronted. Issuance of show cause notice is provided for in the statute itself therefore, failure to give such a notice is fatal and cannot be cured. Since the respondents themselves have failed to comply with the mandatory provisions of relevant law, the impugned actions are liable to be declared illegal and against the law. The well settled principles of law have not been followed at all and the impugned actions have been carried out in total oblivion of the relevant law.
9. For what has been discussed above, this petition is allowed and the respondent No. 4 is directed to first get the petitioner registered and, after conducting audit of petitioner's business, issue show cause notice and provide opportunity of hearing, whereafter liability of petitioner, if any, may be fixed and recovery of tax so determined shall be made strictly in accordance with law, and till that time the Authority is restrained from encashing the cheque of Rs.700,000/- received from the petitioner and from using any coercive measure against the petitioner."
14. The Hon'ble Peshawar High Court, in the case of Messrs Khan and Co. supra, while observing that a taxpayer was under legal duty to get itself registered, perform its statutory obligations and could not absolve itself from the obligations under the Act, also noted that the essential condition precedent for a person to register under the Act was not discussed by the adjudicating authorities for which the matter was remanded to the adjudicating authorities culminating before the Tribunal under the Act of 1990. The relevant portion of the aforesaid judgment is reproduced below for ready reference:- "13. Having said that, while going through the record of the present References, it is noted that the essential condition precedent for a person to register under the Act has not been discussed by the adjudicating authorities. The same in essence being that:- "whether the petitioners fall within the categories of persons liable to registration under the Act, as provided under Rule 4 of the Rules of 2006 or otherwise"
This crucial issue, being essentially a matter of factual determination, is beyond the scope and jurisdiction vested in this Court under Section 47 of the Act. The domain to determine and decide the same rests with the various rungs of adjudicating authorities culminating before the Tribunal under the Act."[Emphasis supplied]
15. The Act of 1990 also provides penalty if a person, who was required to apply for registration under the Act ibid, failed to make an application for registration before making taxable supplies. Under Section 33 of the Act of 1990, such a person is liable to pay penalty of ten thousand rupees or five per cent of the amount of tax involved, whichever is higher , provided he fails to get registered within sixty days of commencement of taxable activity and he may also earn conviction from Special Judge concerned who can order imprisonment for a term which may extend to three years, or with fine which may extend to an amount equal to the amount of tax involved, or with both.
16. Needless to say that, under the law, a definition clause in a statute is of a declaratory nature. Though normally the definitions provided for in the definition clauses are to be read into the provisi ons of the Act while interpreting the defined terms / words, but if the contents of the provisions of the Act indicate otherwise, the definition clause cannot override a main provision of the statute. Definition clause is foundational when construing provisions of law.
Definition given in the Act should be construed in a way so that it is not repugnant to the context and does not defeat or enable the defeating of the purpose of the Act. It is also well settled that tax cannot be charged and levied unless it falls squarely within the purview of the charging provisions. Taxing law cannot be extended by implication beyond the clear import of the language used. Guidance can be taken from esteemed judgments of Hon'ble Supreme Court of Pakistan passed in the cases of Chiarman, Federal Board Of Revenue, Islamabad v. Messrs Al- Technique Corporation of Pakistan Ltd. and others (PLD 2017 Supreme Court 99), and Syed Muhammad Haider Zaidi and others supra.
17. In view of the above, our answer to the proposed questions is that the combined reading of the provisions of the Act of 1990 and the Rules framed thereunder manifestly disclose the intention of the law maker that, where a person is liable to be registered, the applicant department is first required to register that person compulsorily or otherwise in accordance with law, and then charge sales tax from it under Section 3 of the Act of 1990, and may proceed against that person regarding prior to registration contravention of the provisions of the Act of 1990, if any.
In that eventuality , taxpayer shall be entitled to raise all factual and legal objections against the proceedings so initiated or to be initiated by the applicant department which are not dealt with in this judgment.
18. Resultantly , instant as well as connected Reference Applications along with constitutional petitions are accordingly disposed of .
19. Office shall send a copy of this order under seal of the Court to learned Appellate Tribunal as per Section 47 (5) of the Sales Tax Act, 1990.