MUHAMMAD JAWED ZAKARIA (JUDICIAL MEMBER).--- By this order, we intend to dispose of above titled appeal filed by the appellant/taxpayer against the order No,64/2016 dated 30-06-2016 passed by the learned CIR (Appeals-III), Karachi. The appellant/taxpayer agitated grounds of appeal as put-forth in the memo of appeal.
2. Brief facts of the case a transpired from the record are that the taxpayer being an exporter was liable to withhold, sales tax on specified rate. The sales tax data available in FBR e-portal, declared by the taxpayer for the tax period July, 2013 to June, 2015 was scrutinized which revealed that the appellant made purchases from unregistered person but failed to deduct and deposit full amount of withholding sales tax in respect of sale tax return. Therefore, recovery order of short payment of withholding tax amounting to Rs,5,002,873/- which is recoverable under section 11(4) along with default surcharge under section 34 (to be calculated at the time of actual payment) also impose equivalent @ 5% of the amount tax involved under section 33(5) ibid for the violation of the sections 3(7) 6,7 and 26 of the Sales Tax Act, 1990.
3. Being aggrieved and dissatisfied with the treatment meted out by the ACIR, taxpayer preferred appeal before the learned CIR(A) who vide his impugned order dismissed the appeal of the taxpayer for non-prosecution.
4. Again feeling aggrieved and dissatisfied with the impugned order passed by the learned CIR(A) now the taxpayer has come up in appeal before this Tribunal.
5. On the date of hearing, Mr. Adnan Siddiqui, Advocate appeared on behalf of the Appellant/taxpayer while Dr. Latif appeared on behalf respondent/department as D.R.
6. During proceedings before this Court, the learned counsel for the taxpayer argued that the learned Commissioner (Appeals) has erred by upholding the order on the ground of non prosecution. Commissioner should have decided the appeal on merit considering the grounds of appeal submitted by the Appellant. Learned counsel for the taxpayer further argued that the Commissioner Appeal III had erred by dismissing appeal on the ground that counsel of the taxpayer did not respond to the notice issued by the Commissioner appeal. The fact of case is that counsel of the taxpayer had shifted from said office to another office. Due to this reason, notices issued by Commissioner appeal could not reach to the counsel of the Taxpayer. In this situation Commissioner Inland Revenue (Appeals-III) should have served the notices on the taxpayer so that Appellant could have filed the arguments for pleading his case. He has further pleaded that the order of Commissioner (Appeals-III) is bad on facts of the case because the learned Commissioner appeals has mentioned that "both notices were served on declared address of the appellant." No notice was served on the declared address of the appellant. According to learned counsel the issue involved is stand settled by this learned Tribunal vide S.T.A. No,181/KB/2013 read with M.A. (Rect.) No,221/KB/2016 dated 22.03.2017. Therefore, there is no need to send back matter before CIR(A), the learned Commissioner of Appeals has erred by the not considering this fact that Section 11 of the Sales Tax Act does not have any legal provision for passing an order against withholding agent. Section 11 envisages only those situation where tax is not paid/short paid on taxpayer's supplies or erroneously refunded. Tax deduction on purchases is a different issue and cannot be levied or recovered under Section 11 of the Sales Tax Act, 1990. Therefore order passed by the Office of Inland Revenue illegal and ab-initio void. In a judgment reported as (2015) 112 Tax 139 (Trib.) the appellate tribunal held that subsection (2) of Section 11 of Sales Tax Act, is applicable only in case of a person who has not paid tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which was not admissible under this Act.
Tribunal upheld that default of withholding tax can not be levied under section 11(2) of the Act. On this analogy, demand in this case can not be levied under section 11(2) of the Act, On this analogy, demand in this case can not be created under section 11(2) of Sales Tax Act, 1990. He has further added that the recovery of single tax period consisted of one month can only be made under section 11 of Sales Tax, 1990 in terms of learned Appellate Tribunal Judgment reported as 2016 PTD (Trib.) 445. In this judgment Tribunal held that order under section 11 can only be made for one tax period. Law does not empowers tax authority to pass order of 12 tax periods in the garb of monitoring of withholding tax. In this particular case order for 26 months was made, in single order.
He has pointed out that the learned Commissioner of Inland Revenue has erred by not considering this fact that order under section 11 was passed without issuing of show cause notice to the taxpayer registered person. Show cause notice was issued by the ACIR but order was passed by the OIR. A judicial order can only be passed by the same judicial authority who issued the show cause notice. It is also against the spirit of Section 17 and Section 18 of General Clauses Act, 1897.
Therefore, order passed by the OIR is ab-initio void. Finally, he has prayed that impugned order passed by the learned CIR(A) may kindly be vacated.
7. On the other hand, learned D.R. strongly opposed the contention made by the learned counsel for the taxpayer and supported the order passed by the learned CIR(A). Learned D.R. has submitted that the impugned order passed by the learned CIR(A) is legal, lawful and within the framework of law. Finally he has prayed that impugned order passed by the learned CIR(A) may kindly be maintained.
8. We have heard the Learned Representatives of both the sides and have also perused the relevant record of the case. We respectfully follow the judgment of Hon'ble Lahore High Court of Division Bench in the case of Messrs Punjab Beverages Company (Pvt) Ltd. v. Federation of Pakistan due to unawareness of the judgment dated 01-08-2016 delivered by the Division Bench of Hon'ble Lahore High Court in I.C.A. No,1118/2016 containing direction for maintaining status quo. Furthermore, before commenting on legal issue raised by learned counsel we deem it appropriate to have a glance on the relevant provision of subsection (4A) of Section 11 of the Act which read as under:-- "[(4A Where any person, required to withhold sales tax under the provisions of this Act or the rules made thereunder, fails to withhold the tax or withholds the same but fails to deposit the same in the prescribed manner, an officer of Inland Revenue shall after a notice to such person to show cause, determine the amount in default"
9. From a bare reading of the above, which self explanatory provisions, it can easily be gathered that insertion of the above subsection (4A) of section 11 of the Act through Finance Act, 2016 is also indicative of the fact that during the tax period under consideration i,e, July 2009 to October 2012, the recovery of withholding tax by the departmental authorities under section 11(2) of the Act was not legal. Moreover, retrospective effect to the levy cannot be given being charging section and it is applicable prospectively from the date of insertion i,e, first of July 2016. Since the matter relates to the period prior to the insertion, therefore, we deem it appropriate to reproduce the Section 11(2) which read as under: "Section 11(2)
Where a person has not paid the tax due to 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 a show cause to such person, made an order for assessment of tax actually payable by that 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"
10. As the above provisions lead us to conclude that the section 11(2) of the Act only deals with the situation where a registered person fails to pay tax due on supplies made by him or has made short payment or has claimed inadmissible tax credit meaning thereby that the provisions contained in the said section do not deal with the situation where any registered person fails to withhold the sales tax as has been done by the registered person of the case in hand. To cope with such like situation, the legislature inserted a new subsection (4A) in section 11 of the Act through Finance Act, 2016 empowering the departmental authorities to recover the withholding tax but it is pertinent to note that such power was not available with the department under section 11(2) of the Act.
11. The upshot of the foregoing discussion is that the subsection (4A) of Section 11 of the Act inserted through Finance Act, 2016 having no retrospective effect is not applicable for the tax perio'd involved in the case in hand tax period December 2013 to January 2015. Therefore, the appeal filed by the taxpayer is hereby allowed.