MUHAMMAD JAWED ZAKARIA, (JUDICIAL MEMBER).--- By this order , we intend to dispose of above titled appeal filed by the Appellant/Inland Reve nue Department against the impugned Order No.115 dated 24-09-2014 passed by the learned CIR (Appeals-I), LTU, Karachi. The appellant has agitated the following grounds of appeal which are reproduced hereunder: "GROUNDS
1. That the order passed by the Learne d Commissioner Inland Revenue (Appeals) Karachi is bad in law and contrary to facts of the case.
2 That the learned Commissioner Inland Revenue (Appeals) Karachi was not justified to set aside the order passed by the Deputy Commissioner -IR (HQs) Zone-III, R TO, Karachi without considering the facts of the case.
3. That the order had been passed under section 11(2) of the Sales Tax Act, 1990 for charging sales tax in accordance with law .
4. That the learned Commissioner Inland Revenue (Appeals) has erred in accepting plea of the taxpayer that S.R.O. 1125(1)/201 1 was not applicable to the registered person and that the person fell within the precincts of Chapter II of the Sales T ax Special Procedures Rules, 2007 read with S.R.O. 480/2007 dated 09 .06.2007 .
5. That the Commissioner Inland Revenue (Appeals) has ignored the fact that the taxpayer was liable to pay sales tax under condition (viii) of S.R.O. 1125(1)/201 1 dated 31-12-2013 for the tax period January 2012 to March, 2013 on retail transactions.
6. That the Commissioner Inland Revenue (Appeals) has wrongly considered the scope of S.R.O. 1125(1)/201 1 to be restricted to wholesalers, retailers, importers and exporters only overlooking the fact that the S.R.O. was actually and specifically for the benefit of five zero rated sectors of sales tax irrespective of their registration status.
7. That the learned Commissioner Inland Revenue (Appeals) has misinterpreted the intent of the legislature under condition (viii) of S.R.O. 1125(1)/201 1 which specifically rendered it obligatory upon registered person 'solely or otherwise' engaged in retail business to collect sales tax @ 5% on their sales.
8. That the learned Commissioner Inland Revenue (Appeals) has erred in assumin g that S.R.O. 1125(1)/2013 was not for the benefit of retailers as the S.R.O. allowed retailers to collect sales tax Q 5% from end consumers and duly adjust input tax unlike the Special Procedure Rules, 2007 which required retailers to pay sales tax on turnover from their own pockets.
9. That the Commissioner Inland Revenue (Appeals) has ignored the fact that S.R.O. 1125(1)/201 1 was for benefit of retailers allowing collection of sales tax on sales to end consumers in line with the very concept of indirect tax and value added tax in contrast to the turnover based sales tax payments enforceable in the Special Procedure Rules, 2007.
10. That the Commissioner Inland Revenue (Appeals) has erroneously assumed that the introduction of S.R.O.
608(1)/2014 gives retrospective relief to the registered person as it amends the Special Procedure Rules, 2007.
S.R.O. 1125(1)/201 1 is explicitly embedded in S.R.O. 608(1)/201 1 and the introduction of S.R.O. 608(1)/2014 actually acknowledges the scope and legality of S.R.O. 1 125 (1) /201 1.
11. That the appellant/department craves permission to add, alter or amend any ground of appeal on or before hearing of appeal."
2. Brief facts of the case are that the Respondent Messrs Modern House is a sole proprietary concern duly registered under Sales Tax Act, 1990, with Registration Number 1712620003582 and has its business premises situated at 735, Zainbunnisa Street, Saddar, Karachi. The principal business activity of Modern House is retail sales of textile garments. The Responden t Messrs Modern House were filing sales tax returns in terms of Chapter II, of Sales Tax Special Procedures Rules, 2007 promulgated through S.R.O. 480(1)/2007 dated 09th June, 2007, and were paying sales tax at the rate of .75% of the Turnover . It appeared from the record, that the Director , Intelligence and Investigation-IR, Karachi received information that Respondent was paying retail turnover tax at the rate of 0.75% on supply of textile garments as specified under S.R.O. 1125(1)/201 1 dated 31-12-201 1 instead of paying sales tax @ 5% or 2%, as the case may be, in terms of S.R.O. 1125/201 1 dated 31-12-201 1. On receipt of above information the Director , Intellige nce and Investigation-IR, Karachi constituted a team of Inland Revenue Audit Officers headed by the Additional Director , Intelligence and Investigation, Karachi to investigate the issue and to ascertain the liability of sales tax in the case of retailers of goods specified in notification S.R.O. 1125(1)/201 1 dated 31.12.201 1. During the scrutiny of sales tax profile of Respondent for the tax period from January 2012 to June 2013 it was observed that they have made payments of sales tax 0.75% on their retail turnover instead of 5% or 2%, as the case may be. Thus, the team inferred that the Respondent short the sales tax amounting to Rs.605,737/- during the aforesaid period against the supplies of goods as specified in Notification S.R.O.
1125(1)/201 1 dated 31.12.201 1 and, therefore, the Respondent violated the provisions of Sections 3, 6, 7, 22, 23 and 26 of the Sales Tax Act, 1990 read with S.R.O. 1125(1)/201 1 dated 31.12.201 1. The aforesaid investigation team was of the view that the said short paid amount of sales tax was recoverable under Section 11(1) and (2) together with default surcharge under , Section 34 of the Sales Tax Act 1990 and penalty under Section 33 ibid for violation of above stated provisions of law .
3. In view of the foregoing, Show-Cause Notice was issued by the DCIR to the Respondent on 25-09-2013. In response thereto, the A.R. of the Respondent appeared before the DCIR, and submitted written reply which did not find favour with the DCIR and proceeding were initiated, which culminated into an Order-in-Original No.04 dated 25-11-2013 under section 11(2) of the Sales Tax Act, 1990. Being aggrieved and dissatisfied with the treatment meted out by the DCIR, the Respondent/registered person preferred an appeal before the learned CIR(A) who vide his impugned Order-in-Appeal No.1 15 dated 24.09.2014 set-aside the order passed by the DCIR. Feeling aggrieved and dissatisfied with the impugned order-in-appeal passed by the learned CIR(A) now the Inland Revenue Department has come up in appeal before this Tribunal.
4. This court issued notices to both the parties and in response thereto, Mr. Riaz Ali Shah appeared on behalf of the Appellant/ Department as D.R. while Mr. Saifuddin Adeeb (FCA) appeared on behalf of the Respondent/Registered Person.
5. Mr. Riaz Ali Shah, D.R. Additional Commissioner , Inland Revenue appeared as DR on behalf of the Inland Revenue and argued the case. The Learned DR reiterated the grounds of appeal and contended that the respondents were clearly liable to pay sales tax in terms of clause VIII of conditions contained in S.R.O. 1125 dated 31st December , 2011. He fully supported Order-in-Original No.04 dated 25-11-2013 under section 11(2) of the Sales Tax Act, 1990 of the learned DCIR and, fervently opposed the Order No.115 dated 24-09-2014 of the Learned CIR (A).
6. The main thrust of the argument of the Learned DR revolved around condition (VIII) of the aforesaid S.R.O. 1125 dated 31st December , 201.1 and according to the Learned DR the respondent squarely fell within the ambit of the aforesaid condition and was, therefore, liable to pay sales tax in terms of S.R.O. 1125 and in view of direct applicability of aforesaid condition (VIII), the application of Chapter II of Sales Tax Special Procedures Rules of 2007 was automatically extricated. He, in the circumstances has prayed that the impugned order-in-appeal passed by the learned CIR(A) be vacated.
7. On the other hand, Mr. Saifuddin Adeeb appearing as AR of the Respondent with utmost vehemence impugned the aforesaid order-in-original of the learned DCIR and defended the aforesaid Order of the Learned CIR(A). He also referred to written submissions filed on behalf respondent and submi tted that the Learned Deputy Commissioner , Inland Revenue, (HQ) Zone III, RTO, Karachi issued Show-Cause Notice bearing No. CIR/Zone- III/RTO/cont-modern/2013-14/644 dated 25th September , 2013 calling upon the respondent to show cause as to why tax in the sum of Rs. 605,737 may not be recovered from your respondent along with default surcharge and why penalty may not be imposed for violation of certain provisions of the law as specified in the aforesaid Show- Cause Notice. In the opinion [albeit erroneous and portentous] of the learned Deputy Commissioner , the Chapter II of the Special Procedures Rules was not applicable to the respondent and the respondent was required to file sales tax returns in line with S.R.O. 1125 dated 31st December , 2011 and accordingly , the respondent, in the view [although incorrect and conceited] of the Learned Deputy Commissioner , had underpaid sales tax in the aforesaid sum of Rs. 605,737 during the period from 01st January , 2012 to 30th June, 2013. The respondent submitted to the Learned Deputy Commissioner that aforesaid Chapter II of the aforesaid Special Procedures was head-on germane to the respondent and the S.R.O. 1125 dated 31st December , 2001 was lock, stock and barrel extraneous to its case. Without giving due weightage and valid, irrefutable and incontrovertible submissions of the respondent, the Learned Deputy Commissioner passed raising a mammoth demand of Rs. 605,737, and inter alia threatening the imposition of default surcharge under section 34(1) of the Sales Tax Act, 1990 and penalty under section 33[5] of the Sales Tax Act, 1990. The Respondent filed an appeal under section 45B (1) of the Sales Tax Act, 1990, before the Learned Commissioner (Appeals) Zone II, RTO, Karachi against the order of the Learned Deputy Commissioner . The Learned Commissioner Inland Revenue [Appeals-I], Karachi through his Order No. STA/115/ RTO/2014-15 dated 24th September , 2014, allowed the appeal and the Order-in-Original was set aside.
8. The assertions of the Department were rebutted by the respondent by contending that aforesaid S.R.O. 1125 dated 31st December , 2011 was wholly extraneous to the case of respondent and the respondent's case without any shadow of doubt and head-on fell within the most unequivocal vicinity and precise scope of aforesaid Chapter II of the aforesaid Special Procedures Rules, 2007. The learned A.R. focused his arguments in the .written submissions produced before us on the following crucial points: Applicability of Chapter II of the Sales T ax Special Procedures Rules, 2007, inter alia, to Garment Retailers
9. The Chapter II [contained in Sales Tax Special Procedures Rules, 2007 promulgated through S.R.O.
480(1)/2007 dated 09th June, 2007] is with regard to payment of sales tax by retailers. This Chapter II signifies an special regime for all the retailers with the exception of those that have been, in an explicit manner , excluded from the application of the aforesaid Chapter II.
10. That the retailers engaged in retail sales of garments have not been excluded from the aforesaid Chapter II is too conspicuous to be emphasized any further . It is unneeded to stress that once entities engaged in the retail sales of garments have not been excluded these retailers would, as the crow flies, be included in the aforesaid Chapter .
'11. It is imperative to submit that S.R.O. 1125 dated 31st December , 2011 has not introduced any amendment in the aforesaid Chapter II, as to non-applicability of aforesaid Chapter II to the garm ent retailers. For further clarity the it is imperative to give emphasis to the fact that the S.R.O. 1125 dated 31st December , 2011 has not superseded, in the preamble thereof, any part of what has been contained in aforesaid Chapter II.
12. The learned counsel argued that in view of the foregoing submissions there are no split hairs that aforesaid Chapter II is in straight line applicable to the garment retailers.
Non applicability of SRO 1 125 dated 31st December , 201 1, inter alia , to Garment Retailers
13. It was submitted that from the careful perusal of the aforesaid SRO 1125, it can be in most evident manner seen that conditions [i], which defines the scope of aforesaid SRO 1125, in most explicit and unambiguous manner , provides for the applicability of SRO to four categories of registered persons namely [a] manufacturer; [b] importer;
[c] exporter; [d] wholesaler . The retailers are most conspicuous in their absence from the aforesaid [governing] condition [i], which leads to an inescapable conclusion that SRO 1125 is, by no extension of meaning, applicable to retailers.
Applicability of SRO 1 125 dated 31st December , 201 1 to manufacturers cum retailers
14. It is important to submit that aforesaid SRO 1125 is continuation of a sequence of SROs issued prior to the said SRO 1 125 and all these SROs were in relation to five export oriented sectors of the economy , namely;
[i] textiles
[ii] carpets
[iii] leather goods
[iv] sports goods and
[v] surgical instruments.
From a perusal of the legislative history [all the aforesaid SROs] it is evident that the businesses that are exclusively engaged in retail sales, were, by intent and design both, and most explicitly excluded from the application of the aforesaid SROs and the FBR had issued clarifications from time to time as to non-applicability of aforesaid SROs to retailers.
16. It is also evident from the inception of the aforesaid SRO regime, that only those retailers fell within the applicability scope of aforesaid SROs who were manufacturers-cum-retailers and there are clarifications to this effect also issued from time to time by the FBR. It is not understood by any length of interpretation or imagination, as to how from all the aforesaid SROs, only one SRO [namely aforesaid SRO 1125] can be picked out and applied to the business that are exclusively engaged in retail trade. The respondent invited the attention of the Tribunal, to eleven page letter bearing Ref: FBR/1/2013 dated 27th September , 2013 addressed to the Chairman FBR, Islamabad in which, inter alia, the entire history of the aforesaid SRO regime has been mapped with aforesaid FBR clarifications issued from time to time also referred to therein.
17. The learned counsel argued that it is also evident in most conspicuous manner, that condition [viii] of the aforesaid SRO 1125 is applicable to only manufacturers-cum retailers and not to those business that are exclusively engaged in retail trade. It is important to add here that the phrase "who are solely or otherwise " was deleted from the aforesaid SRO, as a remedial measure, through SRO 154 dated 28th February , 2013 and to reinforce the original intention, as to applicability of the SRO to manufactures-cum retailers only .
18. The learned counsel argued that without prejudice to the foregoing it also needs to be asserted that the imposition of tax, by no means, can be sourced from the aforesaid condition [viii].
Without prejudice to the aforesaid submissions the respondents also submits as follows: Imposition of tax through SRO Regime [unauthorized legislation] not permissible
19. The imposition of tax in terms of Article 77 of the Constitution of Islamic Republic of Pakistan is an unshared prerogative of the Parliament and tax cannot be imposed thorough SROs. Your respondents finds considerable credence and strength from a Decision of Honorable Supreme Court of Pakistan in case of Engineer Zafar Iqbal Jhagra v. Federation of Pakistan reported, inter alia, as 108 Tax 1 = 2013 PTD 1491 and your appellant in particular invites the attention to Para 29 of the aforesaid Decision, reading as follows: "........... In the light of the law laid down in the aforesaid judgments it is clear that the Majlis-e-Shoora [Parliament] legislature alone and not the government executive is empowered to levy tax. As far as delegation of such powers to the government/executive is concerned the same is for the purpose of implementation of such laws which is to be done by faming rules or issuing notifications or guidelines depending upon case to case as we have come across some of the cases noted herein above. But in no cases authority to levy tax for the federation is to be delegated to government/ executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby ."
Without prejudice to the aforesaid submissions the respondents also submits as follows: Imposition of T ax through confused legislation not permissible
20. It is a trite rule of taxation that imposit ion of tax owes its origin and source to most explicit charging provision of the law and tax can be levied only when it falls within the four corners of precise and unambiguous letter of law.
That there is plethora of case law on the subject, goes without saying. From the perusal of the aforesaid SRO regime [culminating in aforesaid SRO 1125 (currently in field)] it is palpable that the entire aforesaid regime represented a confused and most ambigu ous legislation and, therefore, the tax imposition cannot emanate there- from.
SRO 608(1)/2014 dated 02nd July , 2014
21. The issuance of aforesaid SRO 608 lends added credence and support to the assertions of the respondent, as to applicability of aforesaid Chapter II. In this respect the respondent invites the kind attention of the Honorable Appellate Tribunal, Inland Revenue, to substitution of rule 5 of the aforesaid Chapter II, introduced by the aforesaid SRO 608. The proviso to substituted rule 5 further establishes that it is Chapter II and no other regime that is applicable, inter alias to Garment Retailers.
The decision of the DB of the honorable Appellate T ribunal at Lahore
22. The Honorable DB of the Honorable Appellate Tribunal at Lahore, comprising of the then Honorable Chairman and Accountant Member in its most instructive and enlightening Order in S.T.A. No. 261/LB of 2014 passed on 11th December , 2014, which had been reporte d as 2015 PTD 2172 [Messrs Stylo Shoes, Lahore v. C.I.R. Zone-X, RTO II, Lahore ] has, in most unequivocal and in no uncertain terms, held that the aforesaid SRO 1125 dated 31st December , 2011 is not applicable to the retailers and the cases of retailers fell within the scope of aforesaid Chapter II, of the aforesaid Special Procedures Rules 2007.
23. In addition to the above arguments from written submissions, Mr. Saifuddin Adeeb FCA the AR of the respondent contended with utmost vehemence that from the onset of new regime to bring the five exported oriented sectors, [namely textile, carpets, sports goods, leather goods and surgical instruments] within taxability arena, which started with the issuance of S.R.O. 539(1)/2005 dated 06th June, 2005 and continues to deal with the issuance of aforesaid SRO 1125, the legislative intent has always been to bring within the purview of the aforesaid new regime only those retailers who were manufacturers cum retailers and not those who were retailers only. He has taken pains to take us through all the SROs and the relevant clarifications that were issued by the Federal Board of Revenue from time to time in this respect, from which according to the Learned AR, it was evident that the intention of lawmakers was to bring within the aforesaid regime only those retailers who were manufacturers cum retailers. He reiterated for added emphasis that the aforesaid intention of the lawmakers continued to remain floating on the surface from the onset of the aforesaid regime and at no stage any intention contrary to the original intention was ever expressed by lawmakers. In fact according to the Learned. AR the curative removal of phrase "whether solely or otherwise" from aforesaid condition (VIII) supports the contention, as the crow flies, and exhibits the continuation of legislative intent to bring only those retailers within the ambit of aforesaid SRO 1125, who are manufacturers cum retailers. The juxtaposed or conjunctive perusal of the conditions (I) and (VIII) would lead to a proper , inescapable and harmonious conclusion as to legislative intention to include only manufacturers cum retailers within the scope of SRO 1125 and no other retailers and this was the precise reason a curative amendment in condition (VIII) to omit the phrase "solely or otherwise" was introduced. There is always an intention behind an amendment and it cannot be said that the amendment was made sans any reason. It is obvious that the reason for the aforesaid amendment was to restrict the applicability of SRO 1 125 to manufactures cum retailers.
24. The learned A.R. further vociferously contended that SRO 1125 cannot be superimposed over Chapter II of the Sales Tax Special Procedures Rules, 2007, nor can two regimes namely Chapter II of Sales Tax Special Procedures Rules and aforesaid SRO 1125 coexist and function and apply in tandem, inter alia, to all garment retailers. If the intention of the law makers was to bring a new regime for, inter alia, for all garment retailers in place of the regime contained in aforesaid Chapter II, it was essential for the lawmakers to first vacate the application of aforesaid Chapter II and then bring in the application of aforesaid SRO 1125. According to the AR this has not been done. The AR goes on to contend that issuance of subsequent SRO 608(1)/2014 dated 02nd July, 2014 supports his contention and in which the application of aforesaid Chapter II has been later removed. According to the AR it is evident that SRO 1125 has not vacated the application of aforesaid Chapter II, inter alia, to garment retailers, in the manner the ' said application has been vacated by aforesaid subsequent SRO 608 and, therefore, in presence of aforesaid Chapter II, there is no way that S.R.O. 1125 can be superimposed and allowed to take place of aforesaid Chapter II.
25. The AR also argues that the exclusion s that had been specified in the aforesa id Chapter II, did not include the garment retailers and for this reason also the garment retailers could not be excluded from the application of aforesaid Chapter II. He has already contended that the application of aforesaid SRO 1125 had been extended to only those retailers who were manufacturers cum retailers and other retailers did not fall within the legislative scope of aforesaid SRO 1125. According to the Learned AR there were two mutually exclusive, stand alone and self- governing regimes contained in aforesaid Chapter II and in aforesaid SRO 1125 and one regime could not be allowed to intrude into the territory of the other . The Learned AR also contended that aforesaid Chapter II being the special regime for retailers would take precedence of SRO 1125 regime, which was not especially for retailers.
According to the Learned AR, in view of the foregoing submissions, there does not remain any doubt, whatsoever , that it is Chapter II and not SRO 1125 which was applicable to the Respondents, during the period covered by the aforesaid Order-in-Original.
26. The AR also contended that a tax could be levied only when the imposition of tax fell within the four corners of explicit and precise provision of the Law. In this respect he cited references to numerous decisions of Appellate Authorities and Superior Judiciary . He argued that the aforesaid regime to bring in the export-oriented five sectors within the taxability scope, from the onset, represented a confused and ambivalent regime and the very fact that number of SROs were issued to supersede the earlier ones and also the fact that number of amendments were introduced in tall these SROs including SRO 1125, prove that the aforesaid regime has been, on a continuous basis, fraught and troubled with numerous confusions from day one onwards. The AR has asserted that numerous Appellate and Judicial Authorities have all the time exhibited zero tolerance to any ambiguity in the charging provisions of a taxing statute. He has contended that where the language of the charging provisions in a taxing statute fails, so must the tax.
27. Refuting the arguments of the learned D.R, the Learned AR vehemently argued that the respondents fell within the scope of aforesaid SRO 1125 in the light of condition VIII thereof. According to the Learned AR the scope of aforesaid SRO 1125 is governed by condition I of the SRO, in which the reference to retailers is most conspicuous in its absence on the one hand and on the other hand, it would be preposterous and totally unlawful to conclude that the imposition of tax can emanate and take origin from [a flawed reference to] aforesaid condition VIII which, keeping in sight the legislative history and numerous FBR clarifications and curative removal of phrase "sole or otherwise" therefrom, refers most evidently to manufactures cum retailers. In support of his arguments, the AR has also relied upon the judgment of the Honorable Supreme Court of Pakistan reported as 108 Tax 1 = 2013 PTD 1491 in case of Engineer Iqbal Zafar Jhagra v. Federat ion of Pakistan . He has drawn our attention to certain excerpts from the aforesaid Decision and in particular to para 29. The relevant excerpts from the aforesaid judgment are reproduced for the requisite reference, advantage, enlightenment and guidance in the matter: "Engineer Zafar Iqbal Jhagra v. Federation of Pakistan 108 Tax 1 = 2013 PTD 1491 - Excerpts from the decision of honorable Supreme Court of Pakistan "12. However , both the learned counsel conceded that under the constitution the Majlis-e-Shoora Parliament is empowered to levy tax and executive Federal Government is not empowered to impose tax by means of rules or SROs and such practice if allowed is likely to cause havoc in the tax regime.
14. Mr. M. Ikram Chowdhry learned ASC stated that constitutional petition number 33 of 2005 was filed on behalf of engineer Iqbal Zafar Jhagra who is an office bearer of the present ruling political party but as notice has been issued to him by the Court, therefore, he would confine himself to the extent of constitutional provisions. He argued that the declaration appended with the bill confers no authority upon the government or the finance minister to increase the rate of GST from sixteen percent to seventeen percent because under Article 77 of the constitution the power to levy and impose tax vests in the Majlis-e-Shoora [Parliament]. He maintained that the practice of levying tax duty etc. which is in vogue since long before passing of the bill by the National Assembly and its enactment after assent of the President is illegal and unacceptable because in such manner no reference ever shall be made by the executive to the Majlis-e-Shoora [Parliament] and such omission is not permissible under the constitution.
He stated that directions be issued for effecting recovery of the excess tax i.e. difference of one percent collected on the taxable supplies from the end users from the date of tabling of the bill in the National Assembly and same be ordered to be refunded to the consumers and if be not practicable for any reason any other appropriate order may be passed e.g. the money in question may be ordered to be spent for the public welfare.
20. It is well settled proposition that levy of tax for the purpose of federation is not permissible except by or under the authority of act of Majlis-e-Shoora [Parliament]. Reference in this behalf may be made to the case of Cyanamid Pakistan Limited v. Collector of Customs PLD 2005 SC 495 where it has also been held that such legislative powers cannot be delegated to the executive authorities. Also see Government of Pakistan v.Mohammad Ashraf PLD 1993 SC 176 and All Pakistan T extile Mills Association v . Province of Sindh 2004 YLR 192 .
21. There cannot be two opinions that the declaration dated 13.06.2013 inserted in the bill unless passed by the Majlis-eShoora [Parliament] was an executive act of the government and not a legislative act of Majlis-e-Shoora [Parliament]. Therefore, imposition or increase as well as reduction of the sales tax with immediate effect in pursuance of the declaration made unde r section 3 of the Act 1931 was against salutary principle envisaged by Article 77 of the constitution which lays down that no tax shall be levied for the purposes of federation except by or under the authority of the act of the Majlis-e-Shoora [Parliament].
23. We are not inclined to agree with the learned counsel because in the instant case except tabling the bill in the National Assembly no legislation on the issue has so far taken place. The question of delegation of power or its coming into effect or operation will arise only after bill is passed by the Parliament and converted into an act on receiving assent of the President i.e. on successful completion of the constitutio nal process and the arguments being raised by the learned counsel may perhaps be relevant thereafter . However , as it has been noted herein above the learned counsel himself was of opinion that delegation of power to the executive government in the matter of imposing tax will create havoc in the tax regime. Thus, it is sufficient to conclude that no such delegation can be considered to have been conferred upon the government in terms of sectio n 3 of the Act of 1931 allowing it to insert declaration for purpose of imposing increasing or reducing GST with immediate effect.
29. In the light of the law laid down in the aforesaid judgments it is clear that the Majlis-e-Shoora [Parliament] legislature alone and not the government executive is empowered to levy tax. As far as delegation of such powers to the government/executive is concerned the same is for the purpose of implementation of such laws which is to be done by framing rules or issuing notifications or guidelines depending upon case to case as we have come across some of the cases noted herein above. But in no cases authority to levy tax for the federation is to be delegated to the government/executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby .
33. This judgment is based on the resolution of House of Commons not by an individual person representing the government/executive as it had happened in the present case. One of the most important observations made in this judgment was "we are not for one moment saying that upon the mere will of the executive new taxes are to be imposed" [Emphases provided]. Needle ss to observe that in this judgment to the longstanding practice of immediate collection of taxes after passin g of resolution by the House of Commons pending passing of the tax bill has been maintained with certain important observations to ensure that tax is to be levied by the legislature but the distinction is apparent vis a vis the instan t case in that the government or the executive being one of the organs of the state following the doctrine of trichotomy of powers was not allowed to effect immediate collection of tax.
Similar was/is the practice in other countries reference of which has been made herein above.
34. It is noteworthy that except in the judgment passed by the Peshawar High Court in the case of Abdul Rasheed [supra] the constitutionality of any of such law as stated earlier never came up for examination before the superior courts in exercise of powers of the judici al review available to them under the constitution. As the Act, 1931 has never been challenged for a very long time question may be posed would it be appropriate to decide its constitutionality . Answer to this proposition lies in the case of Attorney General of Commonwealth of Australia v. Queen PLD 1957 Privy Council 115 wherein the provision of sections 29[1][b] and [c] and 29A of the Conciliation and Arbitration Acts, 1904 to 1952 were challenged being ultra vices and invalid. The Privy Council on having examined these provisions vis a vis facts of the case placed before it observed that "whatever the reasons may be just as there was a patent invalidity in the original act which for a number of years went unchallenged so for a greater number of years an invalidity which to Their Lordships as to the majo rity of the High Court has been convincingly demonstrated has been disregarded. Such clear conviction must find expression in the appropriate judgment". This principle has been reiterated by the Sindh High Court in the case of All Pakistan Newspaper Society v Federation of Pakistan PLD 2012 Kar . l.
35. With profound respect we are not inclined to agree with the view taken by the learned Peshawar High Court in the aforesaid case on question number 2 noted here in above because the learned High Court found itself satisfied in holding on parity of reasoning that in absence of the provisions of the constitutio n that collection of tax from the day when the finance bill was introduced in the National Assembly was illegal unde r the present constitution the law which previously existed in regard to it to be valid even after the constitution.
However , before proceeding further it may be noted that under Article 48 of the constitution of 1962 no tax was liable to be levied for the purpose of central government except by or under the authority of an act of central legislature. Thus it is held that levy of tax also includes increase or reduction in it which is possible only by or under the authority of an act of central legislature. Under Article 77 of the constitution of 1973 in consonance with same expression the words used in Article 48 of the constitution of 1962 have been employed.
Thus in light of the above discussion any provision of an enactment which is against the provisions of Article 77 of the constitution and infringes the fundamental rights of the citizens enshrined in Articles 9 and 24 of the constitution by depriv ing of their life or property without any proper legislation is also tantamount to violation Article 3 of the constitution and the same cannot be considered to be a legislative or a sub-legislative instrument for the purpose of imposing or increasing GST pending passing of the bill by the Majlis-e- Shoora [Parliament] which has already been tabled before it as such section 3 being contrary to Articles 3, 9, 24 and 77 of the constitution is declared to be unconstitutional and void.
41. Reference may be made to Baz Mohammed Kakar's case but on having concluded herein above that sections 3 and 4 being ultra vires the constitution and in derogation to Articles 9, 24 and 77 of the constitution it is not possible to allow such a law to remain on the statute book. Similarly section 5 of the Act of 1931 on account of its absurdity and ambiguity even if it is allowed to remain on the statute book it would be of no use and purpose for the government or the executive. Therefore, while holding sections 3 and 4 to be ultra vires the constitution section 5 too is held to be redundant and the same would also serve no purpose if it is allowed to continue on the statute book.
45. We are not in agreement with the learned ASC because we have taken into consideration the ratio decendi and the principles laid down in the above referred judgments including All Pakistan Textile Mills Association case in respect of delegation of powers and in all the other cases principle has been laid down that levy of tax has to be made by legislature but its enforcement in some of the case can be left at the disposal of government/executive because in any case the legislation has neither effaced itself nor has abdicated its authority to effect the recovery of tax or granting exemption or concession subject to following principle of reasonableness and guidelines discussed in the case which he has relied upon.
47. As far as rules are concerned those are to be framed under sections 51 and 71 with Ogra Ordinance perusal of the said provisions indicates that rules cannot be framed for the purpose of levying additional GST. GST is to be levied on taxable supplies in furtherance of section 3 of Act, 1990 and not by any rules or instruments which has conferred right upon them to impose the tax. Therefore, the aforesaid rule being contrary to the act is hereby declared non est and also violative of the provisions of section 4 of the Act, 1990.
(underlined by us for emphasis)
28. The learned AR has also drawn our attention to another recent Landmark judgment of the Honorable Supreme Court of Pakistan reported as (2016) 114 Tax 241 (SC Pak) = 2016 PTD 2269 (SC Pak) in case of Messrs Mustafa Impex, Karachi and others v. The Government of Pakistan through Secretary . Finance, Islamabad and others , decided on 18th August, 2016 in Civil Appeal Numbers 1428 to 1436 of 2016 in the light whereof the imposition of tax through SRO 1125 constitutes violation, inter alia, of Article 77 of the Constitution of Islamic Republic of Pakistan.
29. The learned AR contended that in accordance with the aforesaid decisions the tax even if imposed in terms of aforesaid SRO could not have been imposed for it is beyond the authority of FBR to impose tax through issuance of SRO. He also contended that aforesaid Decisions of the Honorable Suprem e Court of Pakistan constituted binding precedents. In support of his contention, as to applicability of aforesaid Chapter II and non-application of aforesaid SRO 1125, he has also cited a judgment of Honorable Appellate Tribunal Inland Revenue, Lahore Bench, reported as 2015 PTD 2172 , in case of Messrs Stylo Shoes, Lahore v. C.I.R. Zone X, RTO II, Lahore, in S.T.A.
No. 261/LB of 2014 passed on 11th Dece mber , 2011, in which it has been in an unequivocal manner held that in case of retailers aforesaid Chapter II applies and aforesaid SRO 1125 is not applicable to the retailers, inter alia, during the period covered by the aforesaid order of the Learned DCIR, in case of respondents. He has drawn our attention, in particular to the underme ntioned excerpt from the aforesaid Order of the Honorable Appellate Tribunal, which is reproduced here under , for immediate reference which is reproduced hereunder: "By following the ratio settled by the Honorable Supreme Court of Pakistan in the case reported above and in another Judgment reported as 2001 SCMR 838 (AC Customs v. Khyber Electric Lamps), we have no choice except to hold that the show cause notice and the assessment order issued by the assessing officer in the case of appellant under section 11(2) of the act by holding that the appellant has committed tax fraud under section 2(37) are illegal, void and unlawful. We also agree with the submissions of AR that proceedings initiated in case of appellant without issuing the prior notice under section 38(1) does not sustain in the eyes of law and the entire superstructure built on illegal proceedings is required to be declared null and void.
We also agree with the submissions of the AR that this is not the case of any wilful default and therefore by following Judgments reported as 2004 SCMR 456 = 2004 PTD 1179, 2010 PTD (Trib.) 1515, 2005 PTD (Trib)
1154 default surcharge and penalty provisions do not attract in this case.
Consequently we accepted the subject appeal and vacate the impugned orders of the officers below and the learned Commissioner Inland Revenue (Appeals).
30. In addition to the above, the Learned AR has also drawn attention of other pertinent excerpts from the aforesaid Decision of the Honorable Appellate Tribunal Order reading as follows: ...."W e feel no hesitation in holding that historically the Retailers have been dealt separately from the other categories of registered persons i.e. "manufacturer", "importer", Exporter" and "Wholesaler" and further the amendment made in the both Statutes (i.e. Special Procedures for Retailers and SRO 1125) in July, 2014 has clarified the entire ambiguity . We have also noted that this Tribunal while passing an earlier Judgment in S.T.A. No. 401/LB/2014 dated 9-7-2014 accepted the departmental arguments for levy of tax on retailer under S.R.O. 1125. A perusal of the above observations and findings leaves no room for any doubt that neither the relevant law as raised by the learned representative for the appellant before us, was produced nor considered and, therefore, we have no hesitation in holding that for the reasons to be given prese ntly, the earlier judgment on the subject is per incuriam for which the law of precedence is not applicable. Reliance may be placed on PLD 1963 Kar. 280 , 1995 CLC 1453 Kar. and PLD 1991 Kar . 320 .
"We have further observed that in certain other cases of retailers for the period similar to this appeal, the department has accepted the treatment of the taxpayers who were paying sales tax under the special procedure for retailers instead of S.R.O. 1125(1)/201 1. Reference is made to the cases highlighted by the learned AR of the appellant and quoted in para 31 mentioned supra. Therefore, the discrimination with the appellant is not tenable in the eyes of law .
In the light of the above discussion, we conclude that the appellant being registered as Retailer was liable to pay tax under the Special Procedures for Retailers provided under Special Procedure Rules, 2007 and the tax charged by the assessing officer vide Order-in-Original No. 03/2013 dated 1.6.2013 under S.R.O.
1125(1)/201 1 is not in accordance with the law ."
(Emphases added)
31. The Learned AR contended that keeping in sight the afore-quoted paras, the earlier Decision of the Honorable Appellate ,Tribunal in S.T.A. No. 401/LB/2014 dated 9-7-2014 that had held that SRO 1125 was applicable, has been held to be per incuriam and therefore, the said Decision does not constitute binding precedent.
32. Regarding the imposition of default surcharge and penalty as had been threatened in the aforesaid order of the Learned DCIR, the AR, besides citing the afore-quoted excerpts also argued that in terms of numerous Decisions of Appellate and Judicial Authorities, it is by now a fully settled position and there is no cavil that in any penalty proceedings the mens rea on the part of tax payer being an essential ingredient has to be proved by the Assessing Officer and no penalty can be imposed without first establishing mens rea on the part of taxpayer . He also contended that default surcharge is also in the nature of penalty and this could also not be imposed unless the mens rea was proved.
33. Based on the foregoing the Learned AR has prayed that the appeal of the Depa rtment may be dismissed, being devoid of any merit and the order the Learned CIR (Appeal) may be maintained.
34. We have given our earnest consideration to the arguments of both the learned DR and AR and have also perused, inter alia, the order-in-original of the DCIR, the grounds of appeal and written arguments that were put forth before the Learned CIR (A), the order-in-appeal of the Learned CIR(A), the written submissions of the respondent and have also gone through the case laws cited by the Learned AR, in addition to carefully looking at Chapter II and SRO 1 125 and the legislative history thereof and the SRO 608, as well.
35. We do not find any force in the arguments of the Learned DR and find ourselves in complete agreement with the arguments of the Learned AR of the Respondents to the ef fect that: Aforesaid SRO 1125 was meant, from the onset of the regime, to bring in five export-oriented sectors within taxability , to apply to only those retailers who were manufacturers cum retailers. It is important to note that in the governing condition (i) of the aforesaid SRO there was no reference whatsoever to the retailers, which also strengthened the contentions that aforesaid SRO 1 125 did not apply to retailers.
Aforesaid Chapter II fully applied to the respondents for two reasons namely [i] aforesaid SRO 1125 did not supersede aforesaid Chapter II and [ii] the exclusions stipulated in aforesaid Chapter II did not at any place refer to garment retailers.
33(sic). We have also taken the benefit of going through the aforesaid most instructive and enlightening Decisions of the Honorable Supreme Court of Pakistan and we have also gone through the aforesaid Order of the Honorable Appellate Tribunal Lahore Bench reported as 2015 PTD 2172 , in case of Messrs Stylo Shoes, Lahore v. C.I.R.
Zone X, RTO 11, Lahore, in S.T.A. No. 261/LB of 2014 passed on 11th December , 2011. While agreeing with the contentions of the Learned AR, we have no doubt in our minds that aforesaid Decision of the Honorable Appellate Tribunal squarely applies to the present case under appeal. Respectfully following the aforesaid Order of the Honorable Appellate. Tribunal reported as 2015 PTD 2172 , in case of Messrs Stylo Shoes, Lahore v. C.I.R.
Zone X, RTO II, Lahore , in S.T.A. No. 261/LB of 2014 passed on 11th December , 2011, we hold that the Order of the Learned DCIR was not accordance with the Law and was properly set aside by the Learned CIR(A) and in case of respondents it was aforesaid Chapter II of the Sales Tax, Special Procedures, 2007 that was applicable and aforesaid SRO 1 125 had not relevance whatsoever to the case of the respondents.
36. We also agree with the contentions of the AR with regard to imposition of penalty . In this respect it would be of benefit and relevance to refer to a recent decisions of Honorable Lahore High Court, Bhawalpur Bench, reported as 2017 PTD 1579 and Commissioner Inland Revenue v. Adeel Brothers decided on 31.01.2017 and 2017 PTD 1579 Commissioner Inland Revenue v . Adeel Brothers decided on 31.01.2017.
37. The above discussion unambiguously lead to the conclusion that Chapter II of Sales Tax Special Procedures Rules, 2007 constitutes a special and exclusive legislation for retailers and the taxation regime purported to be enshrined in SRO 1125 signifies a general legislation encompassing other class of registered persons, as well.
Accordingly , in case of conflict amidst the two, it is the special regime contained in aforesaid Chapter II, that will prevail over the general regime, sought to be introduced by SRO 1125. It is, yet again, unessential to reiterate that there is plethora of court decisions, wherein it has been held, time and again, that in case of inconsistency between a general and special legislation, it is special legislation, which will be applied. In the quotations cited by the learned counsel references have been made to some of such decisions. It is further observed that out of numerous retail operators in the field of textile and garments, the Deputy Commissioner could cite only two registered persons who according to him were adhering to aforesaid SRO 1125 which, as related by the respondent is completely misplaced, misconceived and mistaken. The mere fact that the Deputy Commissio ner could find out of numerous retailers only two registered persons complying with SRO 1125, proves that by an large and almost the entire textile retail regime (where applicable) is following Chapter II of Sales Tax Special Procedures Rules, 2007 and not the aforesaid SRO 1125. It is established that the scheme is meant for manufacturers cum retailers and not for those registered persons who are exclusively and solely operating as retailers. It is also opined that a conjunctive and juxtaposed perusal of conditions (i) and (viii) shall prove beyond even the slightest measure of doubt that the registered persons who operate exclusively and solely as retailers have been consciously and in a cognizant manner excluded from the purview of the taxation scheme purported to be introduced through SRO 1125. Under the facts and circumstances narrated above, we have arrived at the conclusion that the department has failed to establish its claim, therefore, we are inclined to agree with the findings of the learned CIR(A) which is hereby upheld.
38. Regarding imposition of default under section 34(1) and penalty under section 33(5) of the Sales Tax Act, 1990, we hold that in the backdrop of the case, no tax is recoverable from the taxpayer , hence the consequently the penalty as well as default surcharge is not recoverable from the taxpayer .
39. Before parting with this Order we would like to add our comments with respect to the Sales Tax Law that is currently prevalent in the country . The Appellate and Judicial Authorities have been incessantly loaded and entangled with litigations pertaining to numerous matters concerning the Sales Tax Law and these included impugning the inadmissibility of certain input adjustments and challenging the vires of the SROs in respect thereof, charge of further tax, sale tax frauds, sales tax withholding and collection of withholding sales tax from unregistered suppliers, in addition to illicit refunds obtained by unscrupulous elements.
40. We are of the considered view that it is high time the lawmakers seriously considered totally scrapping the current sales tax law and the current system of sales tax input and output adjustments and in place thereof implementing the value added tax [VAT] Law in its true form and spirits, which is in vogue in numerous tax jurisdictions around the world and which, owing to its being simple, is working smoothly and bringing about the required quantum of revenue constituting a win win upshot. The zero rating for exporters and others can also be introduced within the new V AT Law wherever and as and when required.
41. It does not need to be laid on with a trowel that in implementation of any tax system, it is branch and root essential for the tax administration not to lose sight of basic principles [canons] of taxation as to Equity , Certainty , Ease and Economy . The Superior Judiciary of country besides furnishing instructive and enlightening guidance and support on countless occasions has unendingly laid emphasis on clarity of concep ts and in details and for use of unequivocal language in the taxing statutes.
42. In our considered opinion it would be most appropriate for the lawmakers to look into and explore the possibilities of instituting sales tax at different stages of sales [value addition]of the goods, instead of continuing with the system of sales tax input and output sales tax adjustments, which beside s causing losses to the revenue on account of continuing menace of flying and fake invoices, is a also source of discontentment and despondency for the honest taxpayers, owing to them being denied the justified sales tax input adjustments, which the exchequer finds itself compelled to prohibit to meet its revenue shortfall. The imposition of value added tax under aforesaid Chapter II can, therefore, be seen as an step in the right direction.
43. Additionally , the existing system unceasingly burdens the Judicial and Appe llate Authorities with numerous litigations. It has also been observed and held by the Appellate and Judicial Authorities from time to time, that the principal and delegated legislation has, on many occasions, exceeded their constitutional and legal mandate, (instances of which and references where to have been included in this order as well) and have framed and implemented laws that had to be struck down.
44. In our considered view, the implementation of a just and even handed multi stage value added tax offers the most appropriate solution to the existing quandary in our sales tax regime and the implementation of the new system, in addition to generating required revenue and broadening the tax base, will bring about simplicity to the system and there will be a considerable reduction in the number of litigations likewise.
45. It is important for the Federal and Provincial Revenue Administrations and the Federal and Provincial Ministries of Finance, to without any further delay , forthwith initiate a process of deliberations and engagements with all the stakeholders, technocrats, economists, finance and tax professionals and shortly unveil the draft New VAT Law.
Following this inevitable exercise, the respective Governments must put in place the appropriate legislation, as quickly as possible.
46. In the wake of Judgments of the Superior Judiciary , it is once again of immediate importance for the Government to, on an urgent basis, stop the practice of tax imposition in violation of Article 77 of the Constitution of Pakistan, where-under the tax imposition is an unshared domain and sole prerogative of the Parliament and no one should allowed to intrude into this arena and impose tax. The imposition of tax through SROs and using delegated legislation conflicts directly with the Constitution of the Country and give rise to needless and protracted litigations.
47. It is also equally or even more important that the law is couched in an unambiguous language, patent scheme of law is followed and there are no inconsistencies allowed to creep into and amid different provisions of the law. In the like manner the legislative history must also be kept in view whenever introducing a new law or when making amendments in the law .
48. We also consider this important to suggest and advise that there should be greater emphasis forthwith increased on Direct Taxation. The number of direct tax payers is dismal and alarmingly low and totally unjustifiable, as well. The Federal Revenue Administrations across the country must immediately initiate a turnaround in this respect, by undertaking the tax broadening enterprise on war footing. It is unneeded to add that the principal revenue driver for the country has to be direct taxation. The cost push effect gene rated by indirect taxation is not good for the economy of the country as a whole. Therefore, the reliance on indire ct taxation should be gradually reduced.
49. Resultantly , the appeal filed at the instance of revenue is, hereby dismissed accordingly